New mortgage applications fell last week for the fourth straight week driven by a huge drop in refinancing, as mortgage rates rose to their highest levels in three months, an industry trade group said on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted market index, a measure of weekly mortgage activity, fell for the week ending April 9 by 22.1 percent to 788.6 from the previous week's 1,012.9.
The weekly mortgage gauge fell its lowest level since the week of Jan. 9 when it was at 702.9. Loan demand, especially to refinance, has fallen in response to a sharp increase in mortgage rates in early April.
The Washington trade group's refinancing index tumbled 30.7 percent, its biggest one week drop since late July, to 2,861.6 from previous week's 4,126.7.
"The fall in refinance applications this week - down over 30 percent - is not surprising given the approximate 40 basis point increase in mortgage interest rates since roughly the middle of March," said Jay Brinkmann, MBA's vice president of research and economics, in a statement on Wednesday.
Economists and the Federal Reserve have said money from refinancing has been vital in supporting consumer spending, which accounts for two-thirds of the U.S. economy.
On Tuesday, the government said retail sales for March rose a surprisingly large 1.8 percent in March to a seasonally adjusted $333.01 billion, the biggest gain since March 2003.
Sales of building and garden equipment rose 10.6 percent last month, while spending on furniture and appliances increased 1.2 percent and 0.2 percent, respectively.
"People are using their refinancing money and home equity lines of credits to buy materials for home improvement," Mark Zandi, chief economist at Economy.com, said on Tuesday of the March spending on home-related items.
Average 30-year mortgage rates, excluding fees, edged up 2 basis points to 5.77 percent. Last week's average 30-year rates were up 7 basis points from the comparable week a year ago.
The latest rate rise has deterred potential borrowers, and caused anxiety to those who have not closed on their loans.
"People are ready to lock in. They don't want to watch the market anymore," said Bob Moulton, president of Americana Mortgage Group Inc., a mortgage broker in Manhasset, New York earlier this week before the report was issued.
The group's purchase index, a gauge of new loan requests for home purchases, slipped by 9.5 percent to 432.2 from 477.5 in the prior week.
The purchase index, considered a barometer of home sales, however is still strong on a historical basis.
Despite a rate spike, all signs are suggesting a brisk real estate market this year, even in the high-end segment.
"We have no inventory," said Diane Saatchi, vice president of sales at The Corcoran Groups-Hamptons on Long Island, New York, earlier this week before the report was issued.
In the Hamptons, where an average home goes for $1 million, "People are buying houses as investments," she added.