The report indicates what some home buyers are facing 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.
According to economists, banks could be looking to shore up short-term rates to discourage buyers from choosing riskier mortgages as defaults on subprime loans increase. Economists also feel that 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.
“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.