Mortgage applications fell 10.4% in the week ended May 15, the Mortgage Bankers Association said Wednesday.
Like Tuesday's report from the Commerce Department that showed housing construction slowed in April, the application data suggest that the housing sector may finally be cooling off. Application volume is seen as a leading indicator of home sales, which typically close 60 to 90 days after an application is filed.
But economist David Lereah of the Mortgage Bankers Association warned against reading too much into the latest data.
Sales and mortgage volumes have been exceptionally strong this year, but "you can't sustain a peak performance," Mr. Lereah said.
"You're going to drop a bit, but you're dropping to very, very high levels," he said.
Despite last week's drop, mortgage applications were 77% higher than a year earlier and 9% higher than four weeks earlier.
The average contract interest rate for 30-year fixed mortgages was 7.07% last week. As long as rates hover around 7%, home sales will remain strong, Mr. Lereah said.
The group's seasonally adjusted refinancing index fell to 1,138.7 from 1,297, while the purchase index fell to 254.8 from 279.2. Purchase applications were down 9.2%, and applications to refinance fell 12.2%.
The Commerce Department reported Tuesday that April's seasonally adjusted annual housing starts were 1.538 million, a 2% drop from March. Housing permits also declined.