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Mortgage applications plunge to 14-year low

Patrick T. Fallon | Bloomberg | Getty Images

Just a slight trend higher in interest rates was enough to stall both potential home buyers and borrowers looking to refinance their loans.

Total mortgage application volume fell 7.2 percent last week from the previous week on a seasonally adjusted basis, according to the Mortgage Bankers Association (MBA). The weekly index is now at its lowest level since December of 2000.

"Although the weekly increase in rates was small, they were trending up in the week following Labor Day, with many data reports showing a pickup in the pace of economic growth," said Michael Fratantoni, chief economist for the MBA.

Read More Chinese love US housing so much, now they're building it

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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.27 percent from 4.25 percent, the first increase in four weeks, according to the MBA. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000), however, decreased to 4.15 percent from 4.22 percent.

Historically, jumbo loans carry higher interest rates, but lenders today are charging borrowers more for loans backed by Fannie Mae and Freddie Mac (conforming loans) to make up for higher fees imposed by the government-sponsored entities and for higher risk.

Applications to refinance mortgages decreased 11 percent from the previous week, seasonally adjusted, to the lowest level since November 2008. Applications to purchase a home fell 3 percent from one week earlier, to the lowest level since February 2014. Purchase applications are now 12 percent below where they were one year ago.

The purchase application numbers are particularly troubling, as all-cash buyers move out of the housing market, leaving mortgage-dependent buyers to pick up the slack. Fall is usually the season where first-time home buyers are most active, but this cohort has had the most trouble participating in the housing recovery, due to tighter credit and weak job and wage growth. Even government-insured loans, which offer lower down payments, are seeing far lower application volumes, down 18 percent from a year ago.

Read More Jobs still biggest worry for home buyers

Mortgage rates continued to move higher this week, taking an aggressive jump Tuesday.

"Rates moved higher at their fastest pace in weeks, reaching levels not seen since early August," wrote Matthew Graham of Mortgage News Daily Tuesday evening. "To put that in context, however, many borrowers will STILL be looking at the same rate they were quoted yesterday, but with higher closing costs."

-By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick .

Questions? Comments? Facebook.com/DianaOlickCNBC