Mortgage Rates Cause Drop in Demand

Once again, mortgage applications dropped as rates hit a four-year high. The real estate industry had started to look up until fixed rates neared seven percent as the week has worn on.

The average rise in rates for the month of June show that, overall, mortgages may be slowing down. Rates across the board are now at a four year high, only to be exceeded by rates in April of 2002. Fixed rates have approached seven percent, while ARMs are now up to 6.36%; the result is that applications for ARM mortgages have dropped in June. The gap between the exotic loans and the conforming loans are closer now then they have been in almost a decade.

The purchase index, a good gauge of home sales in the US, is nearly 100 points lower then the same time last year. While many companies were relying on refinances to carry them through the latest mortgage draught, increased rates and the lack of price difference between confirming and exotic loans have stalled the refinance market as well. Analyst are hoping that the stall will result in a drop of the rates, and a stabilization of prices in order to support the economy and avert a recession.