Mortgage applications in the United States declined to a four-week low as the rate on one-year adjustable loans jumped by the most since the Mortgage Bankers Association began keeping records in 1996.
The report demonstrates the difficulty some homebuyers face in securing affordable financing. The organization's index fell 4 percent last week to 615.2. The group's purchase and refinancing gauges each decreased for a second week.
Banks may be jacking up short-term rates to dissuade buyers from choosing riskier mortgages as defaults on subprime loans climb. The housing slump will worsen as banks restrict the availability of credit and falling real-estate prices prevent owners from tapping home equity for extra spending money, economists said.
"If rates go up and credit gets tighter, that is going to lead to a drop in demand on top of what we have already seen," said Abiel Reinhart, an economist at JPMorgan Chase & Co. in New York. "That is going to have an adverse impact" on the economy through the first half of 2008, he said.
The mortgage bankers' purchase index fell 4 percent to 424 last week from 441.5. The refinancing index decreased 4.2 percent to 1729.6 from 1806.3. Both measures were the lowest in four weeks and below their year-earlier levels.
More than 100 mortgage lenders have ceased operations or sought buyers this year as investors' demand for riskier assets has dried up.
The average rate on a one-year adjustable mortgage surged to 6.51 percent, the highest since January 2001, from 5.84 percent the prior week. The rate also surpassed the cost of a 30-year fixed loan for the first time.
The number of applications for adjustable-rate loans slumped 23 percent, while those for fixed-rate mortgages rose 0.2 percent. Adjustable-rate mortgages dropped to 15 percent of all applications, the fewest since July 2003.
The average rate on a 30-year fixed loan fell to 6.41 percent last week, from 6.49 percent. At that rate, monthly borrowing costs for each $100,000 of a loan would have been about $626, little changed from a year ago.