Applications for mortgage refinancings plummeted 24 percent for the week ending May 29, even with an adjustment for the loss of business on the Memorial Day holiday, but applications for purchase loans jumped 4.3 percent, the Mortgage Banker’s Association said.

With stocks rebounding and the government’s debt load growing, long-term interest rates have been on the rise as Treasuries and mortgage-backed securities fall out of favor with investors.

The MBA reports that the average contract interest rate for 30-year fixed-rate mortgages increased to 5.25 percent from 4.81 percent, with points decreasing to 1.02 from 1.28 (including the origination fee) for 80 percent loan-to-value ratio loans. The 44-basis-point increase was the largest since October 2008.

Although mortgage rates remain low by historical standards, the increase in rates has cooled demand for refinance loans.

Applications for refinance loans made up 62.4 percent of total applications last week, down from 69.3 percent the week before but still well above the 40.6 percent share seen a year ago.

While rising rates make refinancing less attractive, demand for purchase loans continues to rebound — a trend that may be driven by first-time homebuyers and bargain hunters.

The National Association of Realtors this week reported that pending home sales rose 6.7 percent in April as falling prices and low interest rates helped make homes more affordable (see story).

***

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