Applications for U.S. home mortgages decreased last week with potential buyers shying away from the market as rates held steady just below their two-year highs.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, declined 3.7 percent in the week ended July 26. It was the seventh week in a row the index has been lower.
The MBA's seasonally adjusted index of loan requests for home purchases, a leading indicator of home sales, fell 3.4 percent.
Fixed 30-year mortgage rates averaged 4.58 percent, unchanged from the week before and only 10 basis points below a two-year high hit earlier in July.
Rates have risen sharply since early May, pushed higher by the Federal Reserve's plan to start slowing its economic stimulus later this year if the economy progresses as expected.
The Fed is currently buying $85 billion in bonds a month to keep borrowing costs low. The cheap mortgage rates have helped lure homebuyers and worries have emerged that higher costs could take some of the strength out of the housing market's recovery.
Still, most economists don't expect it to derail housing's growth altogether. Rates have risen about 1 percentage point since early May, but still remain low by historical standards.
Refinancing activity has been hit harder than purchases by the rise in rates, which makes refinancing less lucrative. The gauge of refinancing applications fell 3.8 percent.
The refinance share of total mortgage activity was unchanged at 63 percent of applications.
The survey covers more than 75 percent of U.S. retail residential mortgage applications, according to MBA.