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Lowest rates in a year do nothing for mortgages

Mortgage rates fell last week, and in an unusual convergence, so did applications for refinances and home purchase loans.

The average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.26 percent from 4.31 percent, according to the Mortgage Bankers Association. Interest rates on jumbo and federally insured FHA loans also fell, touching their lowest levels in nearly a year.

Read MoreLower rates don't boost mortgage apps to buy homes

"The historically normal sources of market guidance—like economic data and Fed [Federal Reserve] policy—remain afterthoughts, compared with the current flavor of the month," wrote Matthew Graham of Mortgage News Daily. "The flavor? Potential rate cuts and easing measures from the European Central Bank."

The low rates, however, were not enough to boost mortgage volumes: applications to refinance a loan fell a seasonally adjusted 3 percent on the week, and are down nearly 57 percent on the year, according to the mortgage bankers survey. Applications to purchase a home—a closely watched indicator of the housing recovery—fell 4 percent on the week and are 17 percent below year-ago volumes. This does not bode well for home sales as the market moves from the traditionally robust spring season to the slower summer months.

"The lack of movement on mortgage applications even with a significant drop in rates confirms what we have seen for much of the past five years. Namely, that lower rates alone are not enough to generate home purchase activity," said Guy Cecala of Inside Mortgage Finance. "Home prices, mortgage underwriting, employment, and a basic belief that it is a good time to buy home are major factors that seem to influence home buying more than rates."

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Spring was a disappointment for home sales due in part to bad weather. Some believed pent-up demand would surface later, but signed contracts to buy existing homes in April were essentially flat from March and down about 9 percent from April 2013. It begs the question, why are more Americans not taking advantage of lower rates to buy homes?

The answer may be that many people are struggling with their personal finances. A new survey from the MacArthur Foundation, conducted by Hart Research Associates, found that while the public may believe the housing crisis is improving, many respondents do not feel personal relief with their monthly housing costs: seven in 10 believe the U.S. housing market is still in the middle of the crisis or that the worst is yet to come.

Beyond that, attitudes about home ownership, now at a 19-year low, are not improving.

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"Reinforcing survey findings from 2013, attitudes about homeownership have shifted, with 43 percent indicating it is no longer the case that owning a home is, 'an excellent long-term investment and one of the best ways for people to build wealth and assets,' and more than half believing that buying a home has become less appealing than it once was," according to the survey.

While most Americans still aspire to home ownership, they do not believe it is the wealth-building vehicle it once was. That is perhaps why, when even the potential monthly mortgage payments move lowers, it is just not enough to get more buyers off the fence.

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By CNBC's Diana Olick.

Questions? Comments? facebook.com/DianaOlickCNBC

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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