After a steep dive in volume two weeks ago, applications for mortgage refinances and home purchase loans were little changed last week, data from the Mortgage Bankers Association (MBA) show.
Applications mortgage refinances and home purchase loans fell one percent on week on a seasonally adjusted basis. While reports this week showed an increase in new and existing homes sales in May, the mortgage numbers portend a late summer slowdown.
Mortgage rates are lower than they were a year ago—the first time that's happened since last June, when rates spiked a full percentage point on fears of the Federal Reserve would begin to "taper" its mortgage bond buying program. Now, months into the Fed's taper, rates have stabilized at low levels. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.33 percent from 4.36 percent.
"Strong new home sales data did do some damage to bond markets this morning, but it was offset by geopolitical risk in the afternoon," said Matthew Graham of Mortgage News Daily after the Commerce Department release of May new home sales data on Tuesday. "All in all, there was enough balance between positive and negative factors to keep bond markets and hence mortgage rates well within their narrow range."
Weak mortgage applications may seem counterintuitive after strong May sales results. Applications to purchase a home are down nearly 18 percent on year. The trouble is, not every sector of the housing market is improving. A new report from Trulia, a real estate sales and data site, points to improvements in home construction, sales, pricing and foreclosures—all more than halfway back to normal levels. Unemployment among young adults, however, a key housing segment, still lags.
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"May's three-month moving average shows that 75.6 percent of adults aged 25 to 34 are employed, which is just 35 percent of the way back to normal. That's down from 39 percent one quarter ago, though still an improvement from one year ago," noted Tulia's Jed Kolko. "Because young adults need jobs in order to move out of their parents' homes, form their own households and eventually become homeowners, the housing recovery depends on Millennials getting jobs."
First-time home buyers haven't fully returned to the market amid the housing recovery, representing barely 27 percent of buyers in May. Historically, their share is closer to 40 percent. Sales numbers for newly built homes confirm the problem; gains were highest in the priciest home segments, while entry-level sales lagged.
—By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.
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