Mortgage interest rates held steady last week, and more borrowers decided to take advantage of the savings potential, but not nearly as many as could have.
Total mortgage application volume increased 2.8 percent on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association.
The rise came primarily from applications to refinance, which rose 4 percent for the week. Despite the increase, far more borrowers could save money on their monthly payments through a refinance, given that rates are stuck near record lows. Rates were far higher last year at this time.
"The last time rates were at these levels, the refi index was almost twice as high. At these rate levels, there are borrowers who still stand to benefit, but there are many homeowners who have already taken advantage of refinancing and are not yet incentivized to do it again," said Michael Fratantoni, chief economist for the MBA.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 3.67 percent, with points decreasing to 0.33 from 0.34 (including the origination fee) for 80 percent loan-to-value ratio loans.
Mortgage applications to purchase a home increased just 1 percent for the week and are only 5 percent higher than the same week one year ago. The weak level indicates fewer homebuyers in the market, likely due to the short supply of homes for sale and higher prices.
Homebuyer demand did increase in July from June but was far below levels seen a year ago, according to Redfin, a real estate brokerage.
"Buyers continue to be persistent when it comes to giving homes a shot, checking out what's coming on the market despite new inventory being few and far between," said Redfin chief economist Nela Richardson. "But strong tour growth isn't translating into offer growth, so we'll likely see a second lackluster month for sales in August."
Demand for mortgage applications to purchase a home has been decelerating for months. Volume had been up by double digits earlier this year from 2015, but that margin is shrinking.
"As the economy reaches full employment, the pace of job growth is slowing, and this will slow the growth in purchase activity as well, but we do continue to expect growth in home sales going forward," Fratantoni said.
Borrowers may get a jolt on Friday, when the much-anticipated August employment report is released. Interest rates, which have moving in a very narrow, low range for more than a month, could make a decisive move in either direction depending on the numbers.