Mortgage application activity dropped in the week ending May 23 in response to higher rates and likely holiday-related slowing. There were also the effects of tighter lending standards and lower consumer confidence. 

In fact, the most recent Conference Board's Consumer Confidence Index declined to a 16-year low with respondents increasingly concerned about job conditions. Consumers' plans to buy an automobile or home also decreased.

The most recent Senior Loan Officer Opinion Survey released in early May reported tighter credit standards in the past three months for mortgage loans including prime loans. Both do not bode well for the near-term outlook for a meaningful pick-up in application activity.    

The Mortgage Bankers Association reported that the Refinance Index fell 8.9% to 2013.5, while the Purchase Index was essentially unchanged at 352.7 compared to 352.5 in the previous week.

The 30-year fixed contract rate held below 6%, but gained six basis points to 5.96%. Meanwhile, the one-year ARM rate jumped 21 basis points to 6.92%. As a percent of total refinancings, the refinance share declined to 46.1% from 48.2%. ARM share was slightly lower as a result of the higher ARM rates at 9.3% versus 10.0% in the last report.

The spring season has been disappointing for the housing market with the continued weakness in home sales, starts, along with further price erosion in most areas of the country. It is unlikely the early summer season will bring much relief either given the hosing market conditions, low consumer confidence and tight lending standards. 

One potential positive could be passage of housing legislation, at least on helping troubled borrowers refinance into a new Federal Housing Administration loan and possibly reduce the level of foreclosures, which adds to the housing supply and negative pressure on home prices.

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