Mortgage Apps Down 0.1% in June

Mortgage refinance applications increased for the second straight month in June, but a drop in home purchase activity dragged total application numbers down.

Macroeconomic research company Capital Economics calculated a 0.1 percent decline in total loan application volumes throughout June following a 1.8 percent uptick in May. The company's figures are based on weekly reports put out by the Mortgage Bankers Association (MBA).

So far this year, applications have risen in three months and fallen in the other three.

Helping to temper the month-over-month decline was a 0.4 percent pickup in refinancing activity as interest rates came down. According to MBA's metrics, the average 30-year fixed rate was 4.33 percent in June, 4 basis points lower than in May and 30 basis points down from the start of the year.

Even with the latest improvement, however, Capital Economics notes refinancing applications remain down by more than half compared to last year and are 75 percent down from their late 2012 peak, when mortgage rates hovered near 3.50 percent.

"The bigger picture is that refinancing will remain very low for the foreseeable future after 2012's refinancing boom left many borrowers sitting on favourable mortgage interest rates," wrote Paul Diggle, property economist for the firm, in a letter to clients.

Applications for purchase loans—an indicator of future housing market demand—fell 1.4 percent month-to-month, putting an end to a three-month streak of increases that saw applications rise 9 percent.

The last time purchase loan applications were so low was in the mid-1990s.

"The weakness of mortgage applications for home purchase is the missing piece of the housing recovery," Diggle said. "Nevertheless, the falling mortgage delinquency and foreclosure rates, the sharp drop in negative equity and the improving outlook for jobs and income growth all point to an improvement in mortgage applications over the coming months."

In its latest survey, MBA reported a seasonally adjusted 0.2 percent decline in mortgage loan applications for the week ending June 27 as a 1 percent drop in purchase applications offset a 0.1 percent nudge in refinances.