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Watch The Mortgage Apps

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CNBC.com

Is it just me, or does anyone else find the weekly mortgage applications surveyfrom the Mortgage Bankers Association particularly troubling today? I’ve been watching this indicator closely over the last few weeks, as mortgage interest rates rose. I of course expected refis to fall, and they did, and they continue to fall, bringing down the total number.

Last week total applications fell 15.8 percent with the refi index falling 23.3 percent. I don’t like to look at one week, so I’ll go with the four-week moving average, which tells me that the purchase index (applications to buy a house) is basically flat and the refi index is down nearly 20 percent.

During the early spring, refinances were making up close to 80 percent of total mortgage application volume. The numbers were huge, implying that borrowers were able to either take money out to help meet other expenses or at least lower their monthly payments to avoid default. Today refis make up a little over half of total application volume and that percentage is falling every week.

Suffice it to say that for anyone arguing that the bump up in mortgage rates isn’t a big deal, your answer is pretty clear: It is a big deal. Yes, I realize that historically 5.5 percent on the 30-year fixed is low, but history doesn’t mean anything in today’s housing market. 70 percent of all loans in existence are from the bubble years, when 5.5 percent to 6.25 percent was common, according to Mark Hanson of the Field Check Group. This is a market unlike any other, where potential buyers are used to lower interest rates, and borrowers in trouble are in need of lower interest rates to avoid foreclosure.

Refis that were in the pipeline are falling out, due to the higher rates, and fence-sitters are clearly keeping the pole up their you-know-what while the rates stay higher. Given the macro-economic picture right now, without some kind of government intervention (unlikely again due to the macro forces), mortgage rates aren’t going to go down. So where does that leave housing?

Yes, there are investors out there, paying cash and bidding up some of the lowest of the low-end properties. But the mid to higher end is dead, thanks to far higher jumbo rates. So what’s the Administration to do? They like the economy coming back of course, but a comeback will inevitably mean higher mortgage rates. It’s a double-edged sword that slices right through Obama’s housing recovery plan, half of which is all about refinancing borrowers out of danger.

Watch the mortgage apps numbers as we get into summer. They are the real indicator of where this market is going. Sales are skewed by distressed properties. Yes, we’re seeing sales increases in the worst areas of California, Nevada, Florida and Arizona, but these, again, may not involve mortgages. I’m not saying investor sales are bad, I’m just saying that some of these investors are still looking to flip the properties, which means these are not real organic sales, i.e. the kind we need for true recovery.

Questions? Comments? RealtyCheck@cnbc.com