Mortgage applications dropped for the third week in a row around rising mortgage rates and languid housing starts.

The overall index declined by 2.6% after only falling 0.2% last week, according to the Mortgage Bankers Association. Unadjusted, the index fell by 3% from a week ago.

These decreases were led by purchase application volume dropping 3%, both on seasonally adjusted and unadjusted bases. It stands at 1% higher year-over-year. The refinance index fell 2% for the week ending July 27. However, the refinance share of application activity increased to 37.1% from 36.8%.

"Rates rose slightly last week due to easing trade tensions between the U.S. and Europe, and signals on Japanese and European monetary policy," Joel Kan, the MBA's associate vice president of economic and industry forecasting, said in a press release.

"Application activity remained slow, which is in line with weak trends in other housing indicators such as home sales and housing starts. Both purchase and refinance activity decreased last week. Purchase applications decreased for the third week and the purchase index was at its lowest level in a month as low housing inventory and rising home prices continue to be an issue."

Mortgage applications drop

Adjustable-rate loan activity increased to 6.4% from 6.3% of total applications. The share of applications for Federal Housing Administration-guaranteed loans rose to 10.4% from 9.9%. Veterans Affairs-guaranteed loan applications also bumped up to 10.5% from 10.2%, while the share of U.S. Department of Agriculture/Rural Development applications held constant at 0.8%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.84% from 4.77%. The average for 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100) also got amplified this week, going to 4.76% from 4.72%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA stayed static at 4.78% for the third straight week. The average for 15-year fixed-rate mortgages grew by six basis points up to 4.29%.

The average contract interest rate for 5/1 ARMs hit its highest point in the history of the MBA's survey, rising to 4.17% from 4.09%.