Mortgage applications jumped sharply last week, as a weaker-than-expected December employment report sent interest rates lower.
Total application volume on a seasonally adjusted basis rose 11.9 percent on the week, according to the Mortgage Bankers Association. Applications to refinance rose 11 percent and applications to purchase a home increased 12 percent, both seasonally adjusted.
(Read more: Mortgage refinances bounce back as rates settle)
The average contract rate for 30-year fixed mortgages with conforming loan balances ($417,000 or less) dropped to 4.66 percent from 4.72 percent. Rates had been rising after the Federal Reserve announced that it would decrease its purchases of mortgage-backed bonds as part of its strategy to "taper" infusions into the economy.
"The drop in rates was large enough to trigger a pickup in refinance volume," noted Michael Fratantoni, the association's chief economist. "The increase in purchase volume is more likely reflecting an increase coming out of the holidays, beyond what our seasonal adjustment model anticipated."
Fratantoni is quick to highlight that despite this increase, purchase applications are only back to last November's levels and are still 10 percent below where they were at this time last year. Applications to refinance are down over 65 percent from a year ago.
(Read more: Mortgage rates get a break on fees)
The unanticipated rise in purchase applications could be a signal of a strong spring season ahead, now that the holidays are over. Real estate agents surveyed by Credit Suisse, however, are still reporting weak buyer traffic. Mortgage bankers have been concerned that new mortgage rules that went into effect last Friday will knock some potential borrowers out of the market.
Lending had actually loosened slightly in December, before the new rules went into effect.
"2013 closed with the loosest credit requirements of the year," said Jonathan Corr, president of Ellie Mae, a mortgage software and data company, in a report released Wednesday. "The average FICO score for all closed loans last month was 727, 11 points below the 2013 average and 21 points lower than December 2012."
Last month, 31 percent of closed loans had FICO scores below 700, compared with 21 percent in December 2012, according to the report.
(Read more: New mortgage rules may favor the wealthy)
Looking at a daily rate monitor from Mortgage News Daily, the average rate on the 30-year fixed began its slide Friday, after the release of the underwhelming December jobs report from the Labor Department. It fell from 4.62 percent Thursday to 4.52 percent by the end of the day Friday. By Monday, it was at 4.47 percent, but then came up again Tuesday to 4.50 percent.
—By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.
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