Mortgage demand fell last week, even as the average long-term rate dropped to its lowest level in nearly two months, according to data from the Mortgage Bankers Association released Wednesday.
The volume of mortgage purchase applications sank by 4% for the week ending March 31 compared to the previous week, the MBA said.
Purchase applications were down by a whopping 35% year-over-year for the same weekly period.
A lack of available inventory is the primary reason for the dwindling demand during what is normally a busy time of the year in the residential real estate sector, according to the MBA’s chief economist, Mike Fratantoni.
“Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season,” Fratantoni said in a statement.
“After four weeks of increasing purchase application activity, volume declined a bit this week even with another small drop in mortgage rates,” he added.
Application volume sank despite a decline in 30-year fixed mortgage rates, which declined by 5 basis points to a seven-week low of 6.4% for the week.
The volume of mortgage refinance applications also declined by 5 percent compared to the previous week and by 59% year-over-year — a sign that home buyers are still sitting on the sidelines.
Mortgage rates have been in steady decline as fears about trouble in the US banking sector ease stoke optimism that the Federal Reserve will soon stop hiking interest rates.
However, mortgage rates are still much higher than they were one year ago.
“We do expect strong demand from first-time homebuyers over the next several years given the large number of millennials hitting peak first-time homebuyer age, but affordability remains a real challenge in this environment,” Fratantoni added.
US home price have begun to fall in response to the spike in mortgage rates over the last year. In February, overall US home prices fell year-over-year for the first time since 2012, according to the National Association of Realtors.
The drop snapped a record streak of 131 consecutive months of gains.
Last month, famed Yale economist Robert Shiller advised prospective home buyers to delay their purchases by six months or so to secure a better deal in the cooling market.