Mortgage rates fall to a four-week low, but homebuyers still pull back due to record low listings

The already competitive housing market is getting even more so, and that is now cutting into mortgage demand.

Even a small drop in interest rates couldn’t bring more buyers in, although it did boost refinance demand slightly. As a result, total mortgage application volume last week was essentially unchanged, falling 0.6% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.27% from 3.30%, with points increasing to 0.41 from 0.39, including the origination fee, for loans with a 20% down payment. The rate was 41 basis points lower the same week one year ago.

Applications to refinance a home loan, which are highly sensitive to weekly rate changes, increased 2% from the previous week but were 42% lower year over year. The refinance share of mortgage activity increased to 65.2% of total applications from 63.3% the previous week. Given how much lower rates were a year ago, and even earlier this year, there is a shrinking population of borrowers who can benefit from a refinance.