The recent rise in interest rates is continuing to work its way through the mortgage market. The Mortgage Bankers Association said this morning that its mortgage applications index fell by 1.2% over the past week and is now at its lowest level in more than two years. It's off by 47% since its May high.
The vast majority of the deterioration is a function of a dramatic decline in demand for refinance mortgages, which, for obvious reasons, are particularly sensitive to higher interest rates. They were down by 1% on a sequential basis and are 55% lower than they were in early May.
"Refinance application volume continues to decline," said Mike Fratantoni, MBA's vice president of research and economics, "with the refinance index now more than 55 percent lower than its recent peak, reaching the lowest level in over two years."
Meanwhile, applications for purchase-money mortgages sank by 2% on a seasonally adjusted basis. But while the associated index is at its lowest level since February, down 14.7% from the high in the first week of May, it's nevertheless 3.5% higher than it was at this time last year. The year-over-year growth is consistent with this summer's marked pickup in pending home sales.
While statistics like this may, at first glance, appear to be an ominous sign for the housing industry, the reality is more nuanced. We saw this in the earnings announcements of the nation's largest mortgage originators Wells Fargo (NYSE:WFC) and JPMorgan Chase (NYSE:JPM), which reported increases in purchase-money mortgage origination volumes of 46% and 44%, respectively, during the second quarter.
Meanwhile, the nation's largest homebuilder, D.R. Horton (NYSE:DHI), said last week that new home orders in the second quarter improved by 12% over the same time period last year and that deliveries were up by 30%. But on the same day, the nation's second largest builder, PulteGroup (NYSE:PHM), acknowledged that, while its deliveries also increased, its new orders fell by 12% on a year-over-year basis.
At the end of the day, as I've discussed before, the data casts little doubt on the fact that the housing market is indeed in the midst of a robust recovery. Yet, as we've seen over the last few weeks, there's no reason to think that the recovery will be without periodic interruption.