The Mortgage Bankers Association reported today that applications for home loans fell for the third time in a row last week. The industry group's market composite index decreased by 2.5% compared to the previous seven-day period. This marks the 10th time in 11 weeks that the index has dropped. It's now off its May high by 53%.
The one upside is that applications for purchase-money mortgages increased over the previous week -- these are home loans related to the purchase of a house as opposed to the refinancing of a previous mortgage. According to the MBA's data, which covers an estimated 75% of the mortgage market, the purchase money index climbed by 2% on a sequential basis, and is now 3.5% higher than the same week last year.
Alternatively, applications to refinance existing mortgages continued to plummet, falling last week by 5%. The fact that the index is now off by 64% from earlier this year goes a long way toward explaining why banks are starting to cull their mortgage departments.
Most recently, Wells Fargo (WFC +1.45%), the nation's largest mortgage originator, began cutting 2,300 positions in its home loans unit. The root cause, as my colleague Patrick Morris discussed here, is the recent surge in mortgage rates.
The news today follows on the heels of numerous mixed signals from the housing market. In its most recent report, the Commerce Department said new home sales decreased on a sequential basis by 12.4% last month. Meanwhile, the National Association of Realtors announced that existing home sales grew by 6.5%.
The big question going forward is what impact the rising rates will have on the housing market -- and the market for new homes in particular. To say the homebuilding industry is important to the underlying economy would be an understatement, as it's estimated that between two and three jobs are created for every home constructed.
The results of the nation's largest homebuilders paint a mixed picture in this regard. In its most recent earnings release, D.R. Horton (DHI +1.19%) said that orders for new homes grew over the three months ended June 30 by 12% compared to the same quarter last year, while the number of homes it closed on shot up by 30%.
At the same time, however, PulteGroup (PHM +1.18%) said its new order activity fell by 12% in the second quarter, though both its sales and backlog improved on a year-over-year basis. And Beazer Homes (BZH +0.28%) reported a roughly analogous experience. While closing volume climbed at the nation's eighth largest homebuilder, both its backlog and new orders fell.
Will the housing market stumble or continue to climb? That question could largely dictate the performance of the financial sector over the foreseeable future, and the banking sector in particular.
