A real estate sale sign shows the house as “Under Contract” in Washington, DC, November 19, 2020.

Saul Loeb | AFP | Getty Images

Strong increases in house prices and a slight rise in interest rates last week weakened the demand for mortgages.

Total mortgage application volume was down 4.1% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

Home buyer prices are rising the fastest in over six years as the highly emotional, pandemic demand for residential property collides with a record low supply of home for sale, leading to bidding wars. Home purchase mortgage applications fell 4% over the week, but were 16% higher than a year ago. The average homebuyer loan amount hit another record high at $ 395,200.

“Since the most recent low in April 2020, the average purchase credit amount has steadily increased, in line with the accelerated appreciation in home prices that has been seen in most parts of the country due to strong demand and extremely low inventory levels,” said Joel Kan, a MBA economist.

Homebuyers are also less sensitive to small changes in interest rates. After hitting more than a dozen record lows last year, mortgage rates rose slightly earlier this year. The average contract rate for 30 year fixed rate mortgages with compliant loan balances ($ 510,400 or less) increased from 2.92% last week for down payment loans of 20% to 2.95%.

The average jumbo 30-year fixed loan interest rate (over $ 510,400) decreased from 3.19% to 3.17%. Home sales fall at the lower end of the market, where supply is lowest and price gains are greatest, while sales are much stronger at the higher end, where supply is more plentiful.

Home loan refinance requests, which are much more sensitive to daily interest rate changes, decreased 5% over the week, but increased 83% annually. Mortgage rates were 86 basis points higher a year ago, and that comparison is now shrinking, which could weigh more heavily on refinancing demand in the months ahead.

“In a sign that borrowers are becoming increasingly sensitive to higher interest rates, sharp falls in government purchase requests and refinancing requests have slowed overall activity,” said Kan. “The refinancing index has now fallen for two weeks in a row.”