Falling U.S. mortgage rates stem from the housing market’s inability to withstand increases last year, according to Michael Hartnett, chief investment strategist at Bank of America Corp.’s Merrill Lynch unit.

The CHART OF THE DAY tracks an index of loan applications to buy homes, as compiled by the Mortgage Bankers Association. Hartnett mentioned the indicator in a report two days ago that described weakness in housing as “the biggest macro story of the year,” outweighing economic slumps inChina and Europe.

This year’s average reading for the home-purchase index would be the lowest for an entire year since 1995. On a weekly basis, the indicator has fallen as much as 30 percent from last year’s peak, reached in the first week of May.

Thirty-year mortgage rates rose 1.11 percentage points from the start of May through the end of June to 4.46 percent, according to data compiled by Freddie Mac. The national average stayed above 4 percent until this month.

“Both the supply of and demand for residential mortgages in the U.S. remains very weak,” wrote Hartnett, based in New York. “Thus, the U.S. mortgage market could not cope with the jump in rates in 2013.”

Rates had to decline this year “to a more stimulating level,” he wrote. This week’s 30-year average, 3.92 percent, was 0.56 point lower than at the end of last year. The fixed rate is headed for its fourth annual drop in five years.

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