U.S. mortgage applications fell for a second consecutive week, hitting their lowest level in nearly 6-1/2 years despite a sharp drop in interest rates, an industry group said Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ended June 20, which includes both purchase and refinance loans, dropped 9.3 percent to 461.3 -- the lowest level since the week ended Dec. 28, 2001.
The report offers additional evidence of a U.S. housing market that is suffering one of the worst downturns in its history. Significantly tighter lending standards and an unwieldy supply of homes for sale are some of the factors preventing the U.S. housing market from rebounding out of its two-year-long slump.
In a separate report on Wednesday, the government said U.S. sales of newly built single-family homes dropped 2.5 percent in May and more than 40 percent from a year ago.
The median sale price fell 5.7 percent in May from a year earlier to $231,000, the U.S. Commerce Department said.
"The big drop in median home prices reflects the pickup in foreclosures which would cause a major repricing in homes," said Christopher Low, chief economist at FTN Financial. "We ought to see a new equilibrium in demand and supply in the next year or so."
The frenzy of foreclosures hitting the market is aggravating matters adding to the supply of unsold homes and depressing home prices nationwide, analysts say.
The jump in foreclosure sales explains part of the sharp drop in home prices since foreclosures typically sell at about a 20-percent discount to the market, according to Michelle Meyer, an economist at Lehman Brothers in New York.
"Foreclosures and falling home prices are mutually reinforcing," she said in commentary published on Tuesday before the report was issued.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.39 percent, down 0.18 percentage point from the previous week.
Interest rates were also below year-ago levels of 6.60 percent.
The MBA's seasonally adjusted purchase index dropped 7.4 percent to 333.4. The index came in well below its year-earlier level of 428.9 -- a drop of 22.3 percent.
Overall mortgage applications last week were 25.4 percent below their year-ago level. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was down 6.1 percent to 507.3.
The group's seasonally adjusted index of refinancing applications plunged 12.1 percent to 1,212.2, down 30.0 percent from its year-ago level of 1,731.6.
Refi applications demand was the lowest since July 2001, Stone & McCarthy said.
The refinance share of applications decreased to 36.3 percent from 37.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 8.5 percent, down from 9.7 percent the previous week.
Fixed 15-year mortgage rates averaged 5.95 percent, down from 6.14 percent the previous week. Rates on one-year ARMs decreased to 7.09 percent from 7.22 percent.
While U.S. housing market indexes tend to be volatile, data from the MBA may help gauge how the hard-hit sector is faring.