Big drop in mortgage rates juices refinances, but doesn't seduce buyers

Lower mortgage rates are helping more homeowners refinance and reduce their monthly payments, but they are not providing much incentive to homebuyers, who are finding few affordable listings.

​otal mortgage application volume increased 4.4 percent last week on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association. The gain was driven entirely by refinancings.
A drop in interest rates to the lowest level since November pushed refinance volume higher by 11 percent for the week. Volume remained 30 percent below the same week one year ago, when interest rates were even lower.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $424,100 or less decreased 4.17 percent, down from 4.23 percent, with points increasing to 0.39 from 0.37, including the origination fee, for 80 percent loan-to-value ratio loans.
"Homeowners took advantage of the 6 basis-point drop in rates," said Lynn Fisher, vice president of research at the MBA. "Jumbo rates fell even more, sending the average refinance loan size up 5 percent as borrowers with larger loans, who are typically more sensitive to rate changes, moved to refinance."
Homebuyers were not especially excited by the drop in interest rates. Mortgage applications to purchase a home fell 1 percent from one week earlier and are just 3 percent higher than the same week one year ago.
"Despite favorable rates and labor market trends, the purchase market is struggling to accelerate due to low inventories of homes for sale and rising home prices," Fisher said.
Higher home prices sent sales of newly built homes down 11 percent in April, which was a bigger drop than most expected. Mortgage applications to purchase a newly built home were also down during the month, indicating weakness in the new home market.