Refinance Applications Down 29.5% in June, Purchase Volume Climbs

Mortgage application volume saw a significant tumble throughout June as rising interest rates toppled refinance demand.

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According to data taken from the ""Mortgage Bankers Association"":http://mbaa.org/default.htm (MBA) and compiled by ""Capital Economics"":http://www.capitaleconomics.com/, total application volume plummeted 22.5 percent in June, more than 10 times the 2.0 percent decline recorded in May. According to the MBA's numbers, applications fell 11.7 percent in the last full week of June alone.

The major factor behind the drop last month was the precipitous decline in refinance application volume, which [COLUMN_BREAK]

was down 29.5 percent from May--including a 15.6 percent fall in the last week. Capital Economics also noted refinance applications were down year-over-year in June for only the second time in the past 18 months.

As expected, June's drop in refinance demand tracked an increase in mortgage interest rates, which were up to an average 4.58 percent for a 30-year fixed-rate mortgage (by MBA's measure)--the highest level since July 2011. Though rates have come down since the spike at the end of June, Capital Economics expects they will remain close to 4.50 percent through the end of 2013.

While refinance applications fell, however, purchase applications--""the better indicator of underlying demand in the housing market""--edged up 0.1 percent month-over-month in June. Though purchase volume fell 3.1 percent in the latest weekly report, it still stands 12.3 percent higher than last year.

""It's possible that the rise in rates is encouraging those thinking about buying to commit to a purchase now to avoid further rate hikes, hence the resilience of applications for home purchase,"" Capital Economics said. ""But the bigger point is that, with rates still at historically very low levels and affordability favourable, there's no reason that housing demand cannot continue strengthening.""