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A combination of ongoing financial stress and new jitters over the debt ceiling talks helped to scare aware potential mortgage borrowers.

The Mortgage Bankers Association reported that its Market Composite Index, a measure of mortgage loan application volume, decreased 4.6% on a seasonally adjusted basis for the week ending May 19, while the unadjusted index was down by an even 5%.

The seasonally adjusted Purchase Index decreased 4% from one week earlier and the unadjusted index went into a 5% drop and was also 30% lower than the same week one year ago.

The Refinance Index was 5% lower than the previous week’s level and was also 44% lower than the same week one year ago. However, the refinance share of mortgage activity remained unchanged at 27.4% of total applications from the previous week.

Among the federal home loan programs, the FHA share of total applications increased to 12.5% from 12% the week prior while the VA share of total applications increased to 12.5% from 12.2% and the USDA share of total applications increased to 0.5% from 0.4% the week prior.

“Mortgage applications declined almost five percent last week as borrowers remained sensitive to higher rates,” said Joel Kan, MBA’s vice president and deputy chief economist. “The 30-year fixed rate increased to 6.69%, the highest level since March. Since rates have been so volatile and for-sale inventory still scarce, we have yet to see sustained growth in purchase applications. Refinance activity remains limited, with the refinance index falling to its lowest level in two months and more than 40% below last year’s pace.”

Kan also noted the stalemate between President Biden and the House GOP plus the mixed messaging from the central bank is not boosting optimism.

“Investors remained attuned to the uncertainty around the U.S. debt ceiling and communication from several Federal Reserve officials last week, which sent Treasury yields higher, along with mortgage rates,” he added. “Economic data released over the past week have also pointed to a still-resilient economy. The housing market received positive data on new residential construction – which is seen as a key solution to the lack of housing inventory.”