This story was originally published in Builder.

Mortgage applications fell by 2.7 percent on a seasonally adjusted basis from one week earlier for the week ending May 11, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey.

On an unadjusted basis, the Market Composite Index measure of mortgage loan application volume fell 3 percent over the previous week. The Refinance Index fell 4 percent over the same period, down to its lowest level since August 2008. Both the seasonally adjusted and the unadjusted Purchase Index fell 2 percent from the previous week.

The refinance share of mortgage activity fell to 35.9 percent of total applications from 36.3 percent the previous week, down to its lowest level since August 2008. The adjustable-rate mortgage (ARM) share of mortgage applications remained unchanged at 6.5 percent. The FHA share rose to 10.3 percent from 10.1 percent, the VA share fell to 10.3 percent from 10.4 percent, and the USDA share rose to 0.8 percent from 0.7 percent.

“The combination of higher rates and tough buyers’ market are taking a toll on application volume," says Brian Surgener, senior vice president of strategy and analytics at BBMC Mortgage. "The 10 year looks like it is going to hold above 3 percent and now making a move to 3.25 percent. With two more expected moves by the Fed rates are more likely to move higher and not lower. Paired with a tough buyers’ market, where cash is still king due to a low supply of houses, many home buyers may be giving up and continue to rent. Volatility in the rates is traditionally good for the market as it will push people off the fence but with the frustrations with home demand we may continue to see purchase applications drop and there is no doubt refinance applications are going to continue to grind down. One item we need to keep an eye on is affordability. Will we see wage growth that can keep up with these rising interest rates? If we do not and affordability becomes an issue we may see this economy come to a grinding halt.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) fell to 4.77 percent from 4.78 percent. Points remained unchanged at 0.50 for 80 percent loan-to-value ratio (LTV) loans. (All LTV loan reports include the origination fee.) The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100) rose to 4.73 percent from 4.65 percent. Points for 80 percent LTV loans fell to 0.35 from 0.36, and the effective rate increased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA fell to 4.78 percent from 4.80 percent. Points for 80 percent LTV loans rose to 0.76 from 0.75, and the effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 4.20 percent. Points for 80 percent LTV loans rose to 0.53 from 0.48, and the effective rate increased from last week.

The average contract interest rate for 5/1 ARMs rose to 4.09 percent from 4.00 percent, up to the highest level in the history of the survey. Points for 80 percent LTV loans rose to 0.56 from 0.43, and the effective rate increased from last week.

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