Be Very Afraid: Higher Rates Killed Mortgage Activity

Includes: BAC, C, HOV, PHM, TOL
by: Markos Kaminis

Be afraid, be very afraid… The latest Weekly Applications Survey from the Mortgage Bankers Association (MBA) showed that a rise in mortgage rates across most mortgage loan types coincided with a big drop in mortgage activity. I think that is just terrifying, and so should you.

The MBA data showed that for the week ending May 10 its Market Composite Index of overall mortgage activity decreased by 7.3%. It was just a week after climbing higher by a similar amount, but there was no holiday playing havoc with the data like often occurs. So what did change then? Well, mortgage rates jumped up significantly for most loan types, except FHA-backed loans, because points were significantly lower for FHA loans last week.

Loan Type

Rate Change

Effective Rate Change

Conforming Balance 30-Yr. Fixed

+8 Basis Points


Jumbo Balance 30-Year Fixed

+8 BPS


FHA Sponsored 30-Year Fixed

+8 BPS


15-Year Fixed Mortgage

+7 BPS


5/1 ARMS

+2 BPS


As you might have expected, the MBA's Refinance Index dropped 8% on the change in rates. The refinance share of mortgage activity still held at 76%, but for a bad reason. Because as refinancing activity declined, so did mortgage activity tied to the purchases of homes. As such, the MBA's Purchase Index dropped 4% from the prior week.

This might have been part of the reason homebuilder stocks declined on Wednesday even as the Housing Market Index, which measures builder sentiment, improved. The shares of homebuilders PulteGroup (NYSE:PHM), Toll Brothers (NYSE:TOL), and Hovnanian (NYSE:HOV) fell on the day as seen in the chart below:

Chart forPulteGroup, Inc.

Source: Yahoo Finance.

The shares of major mortgage lenders, Bank of America (NYSE:BAC) and Citigroup (NYSE:C), still rose on the day as soft economic data was nullified by increased trader speculation about more Federal Reserve easing. That's another thing I'm terrified about, but that will be the topic of another article, so stay tuned.


If mortgage activity is that sensitive to mortgage rates, despite the extremely low level of rates today, then we should be very afraid. It means there's very little economic support for housing activity beyond rates. That is no surprise for readers of this column who are aware of the massive number of undocumented unemployed Americans out there. It's no surprise for those following along as we bring attention to deteriorating economic data week after week. But knowing a monster is coming does not make it any less frightening; in fact, it builds anxiety.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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