A home for sale on December 17, 2020 in Scituate, Massachusetts.

Matt Stone | MediaNews Group | Getty Images

Mortgage rates fell for the first time in nearly a month, and that started a fire among current borrowers who may have thought they had missed the boat in refinancing their loans.

Refinance requests rose 11% last week from the previous week, according to the seasonally adjusted index of the Mortgage Bankers Association. Demand was 59% higher than a year ago. The refinancing share of mortgage activity rose from 70.7% in the previous week to 71.4% of total applications.

The move was fueled by a fall in interest rates. The average contract rate for 30-year fixed rate mortgages with compliant loan balances ($ 510,400 or less) decreased from 2.95% to 2.92%. For loans with a down payment of 20%, the points were unchanged at 0.32.

“The week-long reversal of the recent rate hike has spurred conventional and government refinancing activity as borrowers continue to adhere to these historically low interest rates,” said Joel Kan, vice president of economics and industry forecasting for MBA. “The MBA refinancing index has reached its highest level since March 2020.”

Buyers were less impressed with the drop in rates and likely more frustrated with overheated property prices and a record low supply of properties for sale.

Home purchase mortgage applications were largely unchanged for the week, increasing just 0.1%. Buying demand was 16% higher than a year ago, but that year-on-year comparison has shrunk over the last month.

Supply is lowest at the lower end of the real estate market and more plentiful at the higher end. This is clearly shown in the amounts that borrowers apply for.

“Average purchase loan amounts in early 2021 continue to rise across all loan types, driven by a strong pace in home sales, a tight housing inventory and high growth in property prices,” Kan said. “Conventional, FHA, and VA purchase credit sizes set new polling records last week.”