As markets continued to react to recent hints that the Fed may begin to taper its stimulus program this year, applications for purchase loans dropped off last week in the face of rising interest rates.

For the week ending June 28, applications for purchase loans slipped a seasonally adjusted 3 percent from a week earlier, but were still up 12 percent from a year ago, according to the MBA’s latest Weekly Mortgage Applications Survey.

Meanwhile, refinance applications plummeted by 16 percent from a week earlier in reaction to rising interest rates — which hit their highest level since July 2011.

“Mortgage rates reached their highest point in two years last week. At these rates, many fewer homeowners have an incentive to refinance, and refinance application volume declined more than 15 percent,” said Mike Fratantoni, MBA’s vice president of research and economics, in a statement. “With this decline in volume, the refinance share dropped to its lowest level in more than two years. Purchase application volume also declined, but not nearly to the same extent, as affordability remains strong.” Source: MBA

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