Requests for mortgages in the U.S. plunged and refinancing activity dropped to a four year low as home interest rates reached their highest level in over two years.
The index of mortgage applications from the Mortgage Bankers Association fell 13.5 percent in the week of September 6th following a 1.3 percent gain the prior week.
The cost of a 30 year fixed rate mortgage touched 4.67 percent on September 5th, according to Bankrate.com, the highest expense for a home purchase loan since May 5th 2011. The rate was 4.58 percent yesterday.
Higher mortgage rates are taking a toll on new purchases and refinancing. The overall mortgage index fell to 385 from 445, putting it at the lowest point since October 2008, at the height of the financial crisis. The percentage of refinancing fell to 57 percent, the smallest amount since April 2010. The peak of refinancing activity was 84.0 percent last December.
Next Wednesday the Fed will announce its decision on the continuation of its quantitative easing program. The central bank has been buying $85 billion a month of mortgage backed securities and Treasuries and is widely expected to begin curtailing the amount of its purchases.
Fed support of the housing market has been a major factor in the rise in home prices. The Case-Shiller Index of home prices was 12.07 percent higher on the year in June, the fourth month in a row of double digit price gains and is not far from the type of sustained price advances that characterized the housing bubble of the last decade.
Several housing statistics, notably building starts, building permits and new home sales have taken a dive in the past several months as mortgage rates have turned higher, raising concerns about the strength of the housing recovery. Existing home sales, the largest category of home purchases has remained strong.
Chief Market Strategist