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A second straight weekly drop in mortgage loan applications may presage weaker housing demand, some experts say, even though homebuilding activity rose to its highest level in 17 years last month.

Mortgage loan applications tumbled 10.7% in the week ended Aug. 15 to their lowest level in more than a year, the Mortgage Bankers Association said, as 30-year fixed mortgage rates ticked higher.

Although most of the decline can be attributed to a drop in refinancing activity -- the refi index decreased 14.9%, while the purchase index fell only 4.9% -- higher rates are likely to crimp sales. Since the beginning of May, 30-year fixed rates have increased almost 100 basis points to 6.22%.

"When interest rates go up, the pool of potential homebuyers who qualify for mortgages is smaller," said Barbara Allen, an analyst at Natexis Bleichroeder. "So, there are fewer purchase applications."

The latest decline in mortgage loan applications follows a 16.1% plunge in the week ended Aug. 8.

In the past three months, the MBA's refi index -- which has been affected the most by rising rates so far -- has plunged 62%. Meanwhile, the purchase index has dropped only 15% from a peak in late May.

To some, the record pace of homebuilding -- housing starts were at their best level since 1986 in July -- suggests that fence-sitting buyers rushed in to buy before mortgage rates climb even higher.

"I think the mortgage data shows a cooling off in fence-sitter buying," said Mike Moran, an economist at Daiwa Securities, who added that demand for homes may temper from current high levels.

Homebuilding stocks were slightly lower Wednesday morning, with

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