A minor reprieve from increasing mortgage rates has not helped to invigorate the mortgage market. The seasonally adjusted index by the Mortgage Bankers Association shows that the volume of total mortgage applications declined 3.3% from the week before.

With conforming loan balances of $554,250 and less, the average 30-year fixed-rate interest rate dropped to 3.24%. However points remained stable at 0.34 including the origination fees for loans with a 20 percent down payment.

Joel Kan, an MBA economics professor, said that “mortgage rates dropped for the first time in August as supply-chain bottlenecks concerns, waning consumers confidence, weaker economy growth and rising inflation drove Treasury yields lower.”

Refinance Demand, which is usually affected by weekly rate changes, continued its slide. It fell 4% over the week before and 33% from the week prior. It was also the slowest pace seen since January 2020. Refinances were not affected by the rate declines that occurred later in week. From 62.2%, the week before, the refinance portion of mortgage applications declined to 61.9%.

The week saw a decline in mortgage applications for home purchases of 2% and 9% respectively, compared to the previous year.

Kan explained that although purchase activity is still being held back by low prices and for-sale inventories, current applications levels point to healthy housing need.” Kan also noted that while refinance volume dropped sharply this year (record $1.6billion) the MBA predicts an increase in buy mortgage originations to record levels this year. The MBA expects continued demand to lead to another record in 2022.

Although mortgage rates were lower at the beginning of this week, all eyes are now on Wednesday when the Federal Reserve will hold its regular policy meeting. It is likely that the Fed will announce a tapering of its mortgage-backed bond purchases. It would impact directly on the mortgage rate.

Matthew Graham, Chief Operating Officer of Mortgage News Daily said, “Traders are aware this and have prepared accordingly, but it is possible that there will still be large movement in bond market today.”