Man filling out mortage application

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Mortgage applications have fallen to their lowest level since the beginning of 2020—prior to the pandemic. Both applications for refinancings and home purchases fell last week, a decline that occurred even as mortgage rates fell, the Mortgage Bankers Association reports.

This marks the second consecutive week for a drop in mortgage demand, which is largely viewed as a gauge of future homebuying activity.

Low housing inventories and high home prices may be taking a toll on the market, economists say. Mortgage applications for home purchases dropped 1% for the week and are now 14% lower than a year ago, the MBA reported.

“Swift home price growth across much of the country, driven by insufficient housing supply, is weighing on the purchase market and is pushing average loan amounts higher,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Even falling mortgage rates last week couldn’t boost demand. The average contract interest rate for a 30-year fixed-rate mortgage dropped 5 basis points to 3.15% (with points at 0.38 for loans with a 20% down payment), the MBA reported. Many borrowers have already refinanced at lower rates, and refinance applications have been lower than 2020 levels for the past four months.

Mortgage applications to refinance last week dropped 2% for the week and are now 8% lower than a year ago, the MBA reported.