The report is a clear sign of weakness in buyer demand heading into the usually busy spring housing season.
"Purchase applications were little changed on an unadjusted basis last week, but this is the time of a year we would expect a significant pickup in purchase activity, and we are not yet seeing it," said Mike Fratantoni, the association's chief economist.
Total application volume fell 8.5 percent on a seasonally adjusted basis from a week earlier, while the Refinance Index was down 11 percent from the previous week.
The seasonally adjusted Purchase Index decreased 4 percent from one week earlier, to the lowest level since 1995.
While higher rates have pushed refinances way down from their boom levels, %VIRTUAL-article-sponsoredlinks%causing banks to fire employees, applications to buy a home were expected to rise. They are now down over 15 percent from a year ago, however.
Unusually bad weather has been blamed for weak home sales and buyer traffic in much of the nation this winter, but sales in January fell the most in the West, where weather wasn't a factor.
Mortgage rates have vacillated in a narrow range, rising last week from an average 4.50 percent on the 30-year fixed conforming loan to 4.53 percent on the MBA survey. Credit availability and tighter underwriting have been far higher barriers to entry this year than rate, especially for first-time home buyers, who have played little to no role in the housing recovery.
"We're in a critical juncture in housing, and it started when rates went up a small 1 percentage point back in June," housing analyst Mark Hanson told CNBC on Tuesday. "We're going from an investor-led housing market to an end user-led housing market, and that's creating a lot of problems."
Investors drove home prices on the low end higher and faster than most had predicted. As they retreat from the market, regular buyers -- who largely rely on credit -- are facing shrinking affordability on top of extremely low inventory.
Rising prices have brought thousands of borrowers above water on their loans, allowing them fto list their homes and move, but not enough have chosen to do so. Demand is strong, but with too few homes for sale, prices will continue higher, albeit at a slower pace given higher mortgage rates this year.
9 Numbers That'll Tell You How the Economy's Really Doing
Mortgage Applications Tumble to Lowest Level in 2 Decades
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.