If consumers can't find a home to buy, then they don't need a mortgage. That's what's likely driving the weakness in mortgage applications, which fell 3.4 percent last week from the previous week.
The seasonally adjusted index from the Mortgage Bankers Association now stands 14 percent lower than one year ago.
"Home sales remain constrained by a lack of inventory across the country, as evidenced by home price growth running almost three times the pace of overall inflation," said Michael Fratantoni, chief economist for the MBA.
Mortgage applications to purchase a home fell 1 percent for the week and have fallen 5 percent in the past four weeks, the height of the spring market. Still, they are 7 percent higher than the same week one year ago. Demand for housing has been strong this spring, but the supply of homes for sale continues to drop.
Two weeks ago, mortgage rates dropped to the lowest level of the year, prompting a jump in refinance business, but they stayed put last week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $424,100 or less remained at 4.17 percent, with points decreasing to 0.32 from 0.39, including the origination fee, for 80 percent loan-to-value ratio loans.
Applications to refinance dropped 6 percent for the week and are 31 percent lower than the same week one year ago, when rates were lower. Interest rates continued to move sideways this week, but that could change Friday with the release of the government's monthly employment report.
"In modern economic history, this report has the biggest potential to move rates — at least when it comes to 'economic reports,'" wrote Matthew Graham, chief operating officer of Mortgage News Daily.