After pulling back for several weeks, homebuyers stepped back into the mortgage market last week.
Total mortgage application volume increased 2.7% compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was 8% higher compared with the same week one year ago.
Purchase applications drove the gains, rising 4% for the week and 5% annually. May is one of the strongest months for home sales historically, especially for larger families looking to move up. This is because they want to move during the summer school break.
While the supply of homes for sale at the low end of the market is slim, there is a growing supply of higher-end homes for sale, so buyers have more to choose from. Prices are also easing up a bit, although they are still higher in most major housing markets compared with a year ago.
The average loan size for purchase applications hit a survey high, which is more evidence that the bulk of today's homebuying is in the move-up market, not the entry-level.
"Even with slower price appreciation in higher-priced markets, home prices are still rising enough to push average loan sizes higher," said Joel Kan, an MBA economist. "With purchase activity increasing and mortgage rate movements mostly unchanged, the refinance share of applications were at their lowest level since last November."
Applications to refinance a home loan were 1% higher for the week and 13% higher than a year ago, when interest rates were 37 basis points higher. The refinance share of mortgage activity decreased to 37.9% of total applications from 38.8% the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 4.41% from 4.42%, with points increasing to 0.47 from 0.46 (including the origination fee) for loans with a 20% down payment.
Mortgage rates dropped at the start of this week, as fears of a trade war with China escalated. Rates could move even lower, if the sell-off in the stock market continues and investors move to the relative safety of the bond market. Mortgage rates loosely follow the yield on the 10-year Treasury.