Mortgage Apps Down for Second Straight Month

Applications for mortgage loans fell for the second straight month in July, kicking off the third quarter with their second biggest monthly drop so far this year.

According to data reported by the Mortgage Bankers Association (MBA) and compiled by Capital Economics, mortgage application volumes slipped an additional 3.4 percent in July following June's 0.1 percent decline.

So far, applications have fallen on a monthly basis in four of the year's seven months.

Declines were nearly even in both purchase loan volumes, which fell 3.6 percent, and refinances, which were down 3.3 percent.

Matthew Pointon, property economist at Capital Economics, said the drop in refinancing is the easier movement to explain, with mortgage rates stopping their slow descent over the year and flattening at 4.32 percent, the same as in June.

"That will have made refinancing a less attractive proposition, particularly after the 2012 refinancing boom has left many homeowners on very low rates," Pointon said.

The fall in purchase applications, meanwhile, came as "more of a puzzle" to the firm. While the apparent end of the downward trend in mortgage rates may have given some potential buyers pause, Pointon notes that rates still remain historically slow, and mortgage affordability still looks very favorable, even as home prices rise.

Adding to that, growth in the labor market and the larger economy has regained some of the ground it lost in the first quarter, driving down troubled loans and negative equity rates.

On the credit side, "It is possible that very tight lending criteria are preventing a broader based recovery in the mortgage market," Pointon acknowledges, "but the MBA's Mortgage Credit Availability Index showed conditions had eased slightly in July."

Given the current state of mortgage lending and the economy, "there seems little reason why applications for house purchase cannot start to stage a recovery over the second half of the year," he concludes.

In its latest index tracking volumes for the week ending August 1, MBA reported a seasonally adjusted 1.6 percent jump in mortgage applications, even as mortgage rates climbed to an average 4.35 percent for a 30-year fixed-rate loan.

All of the recent increase came from refinance activity, which rose 4 percent week-over-week. Meanwhile, purchase applications fell an adjusted 1 percent, the association reported.