Real Estate

Lower rates fail to boost mortgage activity

A sign that reads 'Meet our on-site mortgage specialist' is displayed in a window as a customer walks into a Bank of America Corp. bank branch in New York, U.S.
Ron Antonelli | Bloomberg | Getty Images

Mortgage applications fell a seasonally adjusted 1.2 percent on week last week despite lower rates and expectations of stronger home sales in May, according to the Mortgage Bankers Association (MBA). Total mortgage applications for refinances and home purchases are down 48 percent on year.

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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.31 percent, the lowest level since June 2013, from 4.33 percent, the MBA said.

Real gauge of housing demand

Mortgage applications to refinance home loans have fallen precipitously since last summer, when rates jumped over a full percentage point. They fell 1 percent on week last week and are down nearly 62 percent on year. The refinance share of mortgage activity is now just 52 percent of total applications, down from highs of over 80 percent in early 2013.

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Applications to purchase a home—an indicator of future home salesfell 1 percent on week, but the year-ago comparison continues to widen. Two weeks ago purchase applications were down 11 percent on year; last week the annual drop increased to 15 percent.

Both existing and new home sales increased in April, but the all-cash share of sales remains historically high. Thirty-three percent of existing home sales were all-cash deals, according to the National Association of Realtors. Cash is king on the highest end of the housing market, which is why sales in the top one percent of the price range are soaring, but the rest of the market is faltering.

The federal regulator for Fannie Mae and Freddie Mac, the Federal Housing Finance Agency's (FHFA) Mel Watt, recently announced new policies that could help ease credit at the margins. The government mortgage insurer, the Federal Housing Administration (FHA), also announced a new program that would decrease insurance premiums for borrowers who agree to undergo credit counseling. Despite the moves, realtors and home builders still argue that credit availability standsin the way of a more robust housing recovery.

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As for mortgage rates, while slightly lower last week, they haven't moved much this week. Tuesday marked the fifth straight day with the exact same average rate, according to Mortgage News Daily. That has only happened one other time since 2009.

"Simply put, rates have been extraordinarily sideways, and right in line with the lowest levels in 11 months," wrote Matthew Graham, COO of Mortgage News Daily.

By CNBC's Diana Olick. Follow her on Twitter .

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