Mortgage applications fall to the lowest since 1997 as the 30-year fixed rate edges closer to 7%

• Mortgage applications dropped 4.5% last week from the prior week, according to the Mortgage Bankers Association.
• That's brings application volume to its lowest level since 1997 amid a fourth month of declines.

Mortgage applications fell last week to the lowest level since 1997, according to a report from the Mortgage Bankers Association.

Volumes tracked by the MBA's market composite index fell 4.5% for the week ending October 14, a 25-year low on a seasonally adjusted basis. Unadjusted, the index fell 4% compared to the week prior.

The fall in borrowing volumes to finance home purchases comes as the 30-year fixed mortgage rate hit 6.94%, a 20-year high. The report also showed that people are refinancing homes at a lower clip as well.

"The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market," Joel Kan, MBA's vice president and deputy chief economist, said in a statement. "Residential housing activity ranging from housing starts to home sales have been on downward trends coinciding with the rise in rates."

But while volume slows, consumer appetite for adjustable rate mortgages is climbing, the report said. The share of ARMs rose to 12.8% of all applications, the highest since March 2008.

The popularity of the type of mortgage that contributed to the 2008 housing crash indicates some buyers remain impatient to wait to buy a first home and are willing to gamble on rising rates later.

The slowdown in housing has been brewing for months, in line with interest rate hikes from the Federal Reserve. On Monday, Wharton professor Jeremy Siegel predicted that housing prices would soon face the second-worst decline since World War II.