After a Labor Day week lull, demand for mortgages rose sharply last week from homeowners and homebuyers.

According to the seasonally adjusted index of the Mortgage Bankers Association, the total volume of mortgage applications rose by nearly 5% during the week.

However, mortgage interest rates didn’t change over the last four weeks. Average contract interest rates for 30-year fixed rate mortgages (with conforming loan balances of $554,250 or less), remained the same at 3.03%. Points decreased to 0.30 for loans with 20% down payments.

Although applications for loans to buy a house rose by 2% over the past week, they were 13% less than one year ago. However, the annual average is decreasing. The toxic combination of record-low supply and soaring home prices caused homebuyers to pull back in the summer. Last week’s purchase demand was at its highest level since April.

“Housing demand remains strong going into fall, despite rising home prices and limited inventory. Joel Kan (an MBA economist) said the inventory situation has improved with more homes being constructed and more people listing their property for sale.

Refinance applications for home loans increased by 7%, but they were still 5% less than one year ago.  

Kan stated that the refinance gains this week were largely driven by an increase of FHA and VA application.

These loans are offered at a low down payment by the federal government. They tend to be preferred by first-time or lower income homebuyers.

According to another MBA report, mortgage applications for new homes increased unexpectedly in August. They tend to drop in August because of seasonality. However, demand seems to be rising despite strong price increases.