Mortgage applications to purchase a home fell 3 percent from one week earlier but were 34 percent higher than the same week one year ago.
"Some borrowers may have moved to lock in current rates in advance of the Fed's likely increase this week," said Michael Fratantoni, the association's chief economist.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.14 percent, with points increasing to 0.45 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio loans.
While the Federal Reserve is widely expected to raise the Federal Funds rate on Wednesday for the first time in nearly a decade, that does not necessarily correspond to an increase in mortgage rates. Mortgage rates follow longer-term bond yields, and they could actually go lower in the short term, depending on how investors react to any statements Fed Chair Janet Yellen makes regarding the economy.
Mortgage rates are expected to move higher by the end of 2016, and some argue that is actually healthy for the housing market. The argument is that the low interest rate environment of the past five years has caused home prices to rise too far, too fast.