Application Volume Stumbles as Rates Recover

Mortgage application data for May lends credence to analysts' predictions of a slowdown in the year's second half, ""Capital Economics"":https://www.capitaleconomics.com/ says in its latest US Housing Data Response.

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According to Capital Economics' data--compiled from statistics offered by the ""Mortgage Bankers Association"":http://mbaa.org/ (MBA)--total mortgage application volume fell 2.0 percent from April to May, the first monthly drop since February and the biggest decline since January.

Applications for purchase loans fell 1.3 percent, a sharp decline from the 4.6 percent improvement observed in April. Purchase application volume was down 15 percent from the first week of May through the end of the month.

Refinance applications fared worse throughout the month, falling 1.4 percent from April's 3.3 percent increase. From the first week through the end of May, refinance applications were down a total of 40 percent.

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For the week ending May 31, purchase applications were down 2 percent (seasonally adjusted), while refinance volume was down 15 percent--its lowest level since November 2011. Total application volume was down 11.5 percent, MBA reported.

Ed Stansfield, chief property economist for Capital Economics, attributed the declines to the sharp rise in mortgage rates as markets prepare for a potential tapering of the Federal Reserve's mortgage bond buying program. According to MBA's most recent survey, the average 30-year fixed rate was 4.07 percent to kick off June, up nearly half a percentage point from the start of May.

""For all the talk of a renewed US housing bubble, today's mortgage applications data are a reminder that the recovery remains highly dependent on loose monetary policy,"" Stansfield said.

Despite that, he added that it is difficult to be certain how much the housing recovery might be set back from May's developments.

""Mortgage applications for home purchase are a better gauge of the level of housing demand than refinancing applications. And it is important to keep the rise in mortgage interest rates in perspective,"" he said. ""After all, it seems pretty clear that interest rates have had little bearing on the level of mortgage demand in recent years.

""Given the recent gains in consumer confidence we expect mortgage applications to reverse these losses over the next few months. But today's data appear consistent with our view that the housing recovery will slow in the second half of the year,"" Stansfield concluded.