Call it the calm before the storm.
Mortgage applications barely moved last week, as interest rates fell very slightly, and expectations for the Federal Reserve to raise rates in September seemed on track. Total volume increased 0.2 percent on a seasonally adjusted basis for the week ending August 21 vs. the week earlier, according to the Mortgage Bankers Association (MBA).
Rate-sensitive refinances decreased 1 percent for the week, while applications to purchase a home rose 2 percent. Purchase applications are now 18 percent higher than the same week one year ago. Government loan applications, which require down payments as low as 3.5 percent, drove the overall increase in applications.
This, as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.08 percent from 4.11 percent, with points decreasing to 0.36 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
"The turmoil in global stock markets and subsequent drop in interest rates that began late last week is not evident in these results, but will likely have a significant impact on next week's results," said Mike Fratantoni, chief economist for the MBA.
Mortgage rates moved lower Friday and Monday, as the U.S. stock market fell dramatically, and investors fled to the relative safety of the bond market. Mortgage rates loosely follow the yield on the U.S. 10-year Treasury. Mortgage lenders reported strong interest from consumers Monday.
"I've gotten several calls this morning with a little bit of panic. Is now still the right the time to buy? Where is it going to end? What's the market going to look like? Is now the right now? Is it time to panic. Looking at your accounts, dealing with losses is certainly a challenge," said Matt Weaver, Finance of America Mortgage vice president of sales in an interview Monday with CNBC's Steve Liesman.
Rate moves, especially higher, can cause a short-term surge in home buying. Existing home sales rose this spring, despite a sharp jump in rates that began in May. When rates sit at low levels for a long time, buyers are less apt to act.
"Consistently from the homebuilders, what we've heard is that there is a lack of urgency among buyers in part because rates haven't moved at all," noted Susan Maklari, senior equity Analyst at UBS on CNBC's Closing Bell Tuesday.
Lower rates may give potential buyers more purchasing power, but they also signal that fewer buyers may be in a financial position to buy a home.
"The reason that rates are going down generally is because the economy is weaker on some level, and that weakness really deteriorates or chips away at that housing demand because lenders tighten their credit box and then borrowers' confidence shrink. They're not willing to take on that new mortgage credit," said Tim Rood, chairman of the Collingwood Group.
It now appears less likely that the Federal Reserve will make a move in September, but there is still a possibility. Housing demand will certainly react, but other factors, like home prices, housing supply and consumer confidence will likely play a larger role in that demand than rates.