Mortgage applications barely budge despite rate drop

For the second week in a row, mortgage activity barely budged, despite a small drop in interest rates. Total application volume rose 0.8 percent last week on a seasonally adjusted basis from one week earlier, according to the Mortgage Bankers Association (MBA).

The gain in volume was, again, driven entirely by applications to refinance, which rose 2 percent from the previous week. Refinance volume is now 6 percent higher compared with the same week one year ago. Mortgage applications to purchase a home were essentially flat, down 0.1 percent from the previous week. Purchase volume, however, is 17.5 percent higher than it was one year ago.

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"Although total purchase applications were little changed for the week, this resulted from a combination of a small increase for conventional purchase loans, and a decrease for government purchase loans," said Michael Fratantoni, chief economist for the MBA. "We continue to see a decline in the average size of purchase loans, further indicating that entry-level buyers are beginning to return to the market."

The Realtors are still not reporting any surge in first-time buyers, putting their share at just under one-third of home purchases in June; another report, however, from Campbell/Inside Mortgage Finance, said first-time buyer share is rising, now to 38.3 percent of home purchases in June, "a share not seen since 2010 when first-time homebuyer activity was boosted by a federal tax credit," according to the report. These buyers usually make up 40 percent of the purchase market.

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Whatever the share of first-time buyers, the home ownership rate continued to decline in the second quarter. It fell to just 64.3 percent, the lowest rate in 48 years, according to the U.S. Census. The decline comes as home prices gain some steam, but mortgage rates ease slightly.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.17 percent last week, the lowest level since June, from 4.23 percent, with points increasing to 0.36 from 0.34 (including the origination fee) for 80 percent loan-to-value ratio loans, according to the MBA.

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