Mortgage applications fall 3.9% despite drop in rates

A tiny pullback in interest rates did nothing to improve mortgage application volume. The total tally fell 3.9 percent for the week ending March 13th from the previous week, according to the Mortgage Bankers Association. The numbers are seasonally adjusted.

Refinances led the way down, falling five percent week-to-week. The refinance share of mortgage activity decreased to 59 percent of total applications, the lowest level since October 2014.

"Refinance application volume dropped last week, as many lenders are now offering rates above 4 percent, which has been an important demarcation line in terms of the level of activity," said Michael Fratantoni, chief economist for the MBA.

Mortgage applications to purchase a home, an indicator of future home sales, fell 2 percent from the previous week, but are one percent higher than the same week one year ago. This as weather across much of the Northeast and Mid-West warmed, and more buyers came out to shop for homes. A rise in mortgage rates can spur home buying, as shoppers worry that if they wait too long, they will lose out on low rates. That does not appear to be happening now, as the market is severely hampered by a lack of homes for sale .

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Mortgage rates appear to be playing little role in home purchase activity, but they are affecting refinance volume, as so many borrowers already took advantage of record-low rates in the last two years. Refinance applications are up nearly eleven percent from a year ago, when mortgage rates were above 4 percent but are down 15 percent in the last month as rates moved off recent lows.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.99 percent last week from 4.01 percent the previous week, with points increasing to 0.40 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio loans. Rate watchers do not see this as any great gain for consumers.

"While any winning streak is a welcome sight to fans of low rates, this one is most appropriately chalked up to the heavy losing streak intact for the 5 previous weeks," wrote Matthew Graham of Mortgage News Daily. "February ended up being the worst month for mortgage rates since the mid-2013 'taper tantrum,' [when the Federal Reserve signaled the end of its investment in mortgages] and our recent improvements are possible only due to that fact."