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Mortgage refinancing falls despite rates at 18-month low

Sign advertising mortgage rates at a Citibank branch in New York.
Scott Mlyn | CNBC
Sign advertising mortgage rates at a Citibank branch in New York.

The holiday week was slow for potential home buyers but even slower for those looking to save money on their monthly mortgage payments.

Applications to refinance a home loan fell 13 percent last week from the previous week, on a seasonally and holiday-adjusted basis, according to the Mortgage Bankers Association (MBA). That pushed overall application volume down 7.3 percent week-to-week.

The drop in refinance activity shows how little the shifts in already-historically-low mortgage rates affect today's borrowers. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased from 4.15 percent to 4.08 percent, the lowest level since May of 2013. Refinance volume is now off 16 percent from a year ago.

"Interest rates dropped through the course of last week, but the holiday likely delayed homeowners from acting on that drop in rates to refinance. We would need rates to drop back below four percent to generate substantial refinance activity," said Michael Fratantoni, chief economist for the MBA.

As for home buyers, the lowest rates in 18 months pushed mortgage volume slightly higher. Loan applications to purchase a home rose three percent for the week, but volume is still off over 4 percent from a year ago. Mortgage rates began rising this week, although not for any particular reason relating to the broader economy. That may be about to change.

"The next three days bring events that are much more significant than anything we've seen so far this week," wrote Matthew Graham of Mortgage News Daily. "If they're friendly enough, they could counteract some of the underlying weakness we're seeing here, but if they're unfriendly, the combined effect could be ugly."