The number of mortgage applications continued to drop last week for the fifth consecutive time. According to the Mortgage Bankers Association's weekly market composite index, a measure of mortgage loan application volume, there were 1.2% fewer applications for home loans submitted last week than the week before. On a year-over-year basis, that equates to a 44% decline.

If you've been following the mortgage market over the last few months, this shouldn't come as a particularly big surprise. Since the end of May, interest rates have soared, sending the demand for home loans concomitantly lower.

Given their heightened sensitivity to rates, applications to refinance an existing home, as opposed to purchase a new one, have been particularly hard hit. As evidence of this, the MBA's refinance index is at its lowest level since July of 2011. They've dropped by over 50% in the last two months alone, as the rate on a conventional 30-year fixed-rate mortgage went from below 3.5% to right around 4.5% today.

Paradoxically, the story is very different in the purchase-money mortgage arena. While the MBA's corresponding index fell by 2% last week and is down by roughly 10% since the beginning of May, the nation's two largest mortgage originators, Wells Fargo (NYSE:WFC) and JPMorgan Chase (NYSE:JPM), recently reported that their purchase-money originations shot up in the second quarter by 44% and 46%, respectively, over the same three months last year.

This paradox has led some to conclude, and rightly so at this point, that the surge in mortgage rates may ultimately act as a catalyst for the housing market, at least in the short run. If true, it would be good news for more than just mortgage underwriters. Homebuilders like Hovnanian (NYSE:HOV) would benefit from increased demand. And peripheral industries like home improvement retailers, most notably Home Depot (NYSE:HD) and Lowe's (NYSE:LOW), would see an uptick in business as well.