A slight drop in interest rates was not enough to rejuvenate the mortgage market, although refinances are still elevated since the Brexit vote caused the initial rate plunge.
Total mortgage application volume fell 3.5 percent last week on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association.
Refinance volume, which is highly rate-sensitive, fell 4 percent last week, but it is nearly 56 percent higher than one year ago, when rates were higher. The drop in rates after the Brexit vote brought the total number of borrowers who would benefit from a refinance to 8.7 million, according to Black Knight Financial Services.
Mortgage applications to purchase a home fell 2 percent for the week and are up just 6 percent from a year ago. Purchase applications are less rate-sensitive week-to-week.
"Purchase application volume continues to run ahead of last year's pace, but after growing quite strongly in the first half of the year, the rate of improvement has decelerated this summer," said Lynn Fisher, the MBA's vice president of research and economics.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.67 percent from 3.69 percent, with points decreasing to 0.24 from 0.32 (including the origination fee) for 80 percent loan-to-value loans.
Homebuyers have not benefited as much from the lower rates as they might have because home prices are still rising so fast. Prices were up 5.7 percent in June from a year ago, according to CoreLogic. That is a decrease from the 5.9 percent annual gain in May, but still significant.
"Home prices continue to increase across the country, especially in the lower price ranges and in a number of metro areas," said Anand Nallathambi, president and CEO of CoreLogic. "We see prices continuing to increase at a healthy rate over the next year by as much as 5 percent."
Mortgage rates have moved off their post-Brexit lows, but they have been increasingly stubborn to make significant gains. The July employment report being released on Friday could move rates more significantly, depending on the results. Bond yields, which mortgage rates loosely follow, could break out of their current tight range.
"With 10yr yields ending the day near 1.55 percent, rates are essentially threatening to move higher," Matthew Graham, chief operating officer of Mortgage News Daily, wrote late Tuesday. "The next three days bring a series of important economic reports that could act as motivation for such a move, if they turn out to be stronger than expected."