It was yet another small tick higher for interest rates last week, and it was enough again to hold borrowers back from applying for a mortgage.
Total application volume fell 3.4 percent for the week from the previous week, according to the Mortgage Bankers Association. Volume is 14 percent higher than one year ago.
Refinance demand fell 6 percent for the week, but it is 15 percent higher than one year ago. Rates are not that much different now than they were then.
All figures are seasonally adjusted.
"Refinance activity decreased for the second-straight week because fewer borrowers have an incentive to refi at the current level of rates, but there are still some who respond to the small changes we have seen in recent weeks," said Michael Fratantoni, chief economist for the MBA.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (up to $417,000) increased to 3.87 percent from 3.85 percent, with points increasing to 0.36 from 0.35 (including origination fee) for 80 percent loan-to-value ratio loans. While rates were higher for the first half of last week, they fell midweek, after the Federal Reserve held steady on interest rates.
Mortgage applications to purchase a home were essentially flat for the week but are 13 percent higher than a year ago. Purchase applications are less sensitive to small changes in interest rates.
"No one had anticipated that the Fed would raise rates at last week's meeting. But, MBA and others had expected somewhat more of a signal that they would be increasing rates again in June. Odds of a June [rate hike] have decreased a bit, but we expect that is still the most likely outcome," added Fratantoni.
Mortgage rates pushed lower Tuesday, as investors fled to the safety of the bond market amid a stock sell-off. Rates are now at two-week lows, which some saw as an important victory for the mortgage market.
"If we'd lost ground, it would have confirmed a negative signal about momentum in the short to medium term," said Matthew Graham, chief operating officer of Mortgage News Daily. "Now we have a fighting chance to see if momentum can build in a friendlier direction."