The Mortgage Bankers Association of America (MBA) reported in its latest survey that mortgage loan applications have fallen to their lowest levels since December, 2002. Many economists have now begun to speculate the recent rise in interest rates may hobble the anemic economic recovery in the U.S.

The level of applications to purchase homes showed only a modest drop and is still near all-time highs. In contrast, refinance applications have fallen to the lowest level seen this year and are down more than 50 percent from where they were just four weeks ago – not surprising given the sharp increase in rates since mid-June,” said Jay Brinkmann, MBA’s vice president of Research and Economics.

During the past few years, the record number of home sales and refinancings has been credited as the bright spot in the struggling economy. Lower rates have allowed home buyers to save money on payments and home owners to lower their payments after refinancing.

Consumers would then spend the money saved on additional goods and services. In the first half of this year about $50 billion of consumer spending was due to cash-out refinancings, according to Freddie Mac, the national mortgage company. For all of 2002 the amount totaled $96 billion.

Rates for 30-year loans, the most commonly used home mortgage, rose to 5.87 percent in the latest week from 5.72 percent in the previous week, according to the MBA. The average rate for 15-year fixed-rate mortgages, popular with re-financers, increased to 5.18 percent from 5.10 percent one week earlier.

source: Reuters, Mortgage Bankers Association of America, 7/30/2003