Interest rates for U.S. mortgages dropped to their lowest level in over a year last week, but that wasn't enough to move potential home buyers off the fence and into a house.
Total mortgage application volume rose just 0.2 percent last week from the previous week, on a seasonally adjusted basis, according to the Mortgage Bankers Association (MBA). This as the average contract rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.25 percent from 4.28 percent, the lowest level since June, 2013.
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Applications to refinance loans rose one percent on week, while applications to purchase a home fell two percent and are down nearly 12 percent on-year. The rise in refinances was led by government-insured and financed loans from the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).
"There was an almost 12 percent jump in refinance applications for government loans, led by an 18 percent increase in FHA refinance applications," said Michael Fratantoni, chief economist for the MBA. "The increase likely reflected an effort by some lenders to reinvigorate their FHA refinance programs."
Mortgage rates wavered in a tight range for the past year, never edging below the emotionally significant 4 percent line, where they had been at the beginning of 2013. Rates haven't fallen significantly in part because banks do not expect the recent rallies in the Treasury market to continue; instead they still see interest rates moving higher toward the end of this year.
As for home buyers, the slight move lower in rates this summer has not been enough incentive lure them into the market.
"Borrowers who are most sensitive to interest rates took action and bought homes the last time when rates were this low," said Goldman Sachs analyst Hui Shan in a note to investors. "Therefore, the remaining pool of borrowers who haven't bought homes are proven to be less sensitive to interest rates and are less likely to buy houses when mortgage rates reach the current level again."