In yet another sign of a weakening spring housing market, mortgage applications took a step back last week.
The drop may be due in part to higher home prices and, in turn, fewer entry-level buyers able to afford a home. Total application volume fell 4.1 percent on a seasonally adjusted basis from the previous week. The Mortgage Bankers Association's weekly tally was nearly 16 percent lower than the same week one year ago.
Purchase applications fell 3 percent for the week but remain 9 percent higher than one year ago.
"The survey saw relative weakness in the growth of government application volume, suggesting that many potential first-time buyers remain on the sidelines due to the lack of entry-level homes on the market," said Michael Fratantoni, chief economist for the MBA. "The year-over-year increase was driven by conventional loans, which tend to be larger, leading to a record high for the average purchase loan size."
Higher interest rates over the past few weeks weighed on refinance volume, which fell 6 percent for the week and is down nearly 37 percent from the same week one year ago. Refinance volume is now at the lowest level since 2008. Mortgage interest rates have been moving in a narrow field since their initial spike following the presidential election.
The average contract interest rate for 30-year, fixed-rate mortgages with conforming loan balances of $424,100 or less remained unchanged at 4.23 percent, with points increasing to 0.37 from 0.31, including the origination fee, for 80 percent loan-to-value ratio loans.
As rates remain higher and home prices continue to rise, more borrowers are choosing adjustable rate mortgages, which offer lower interest rates. ARM volume is now up 24 percent from a year ago.