Mortgage demand is finally crawling out of the basement as interest rates continue to move lower.

Total application volume increased 3% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.41% from 7.61% and points decreased to 0.62 from 0.67 (including the origination fee) for loans with a 20% down payment.

“U.S. bond yields continued to move lower as incoming data signaled a softer economy and more signs of cooling inflation. Most mortgage rates in our survey decreased, with the 30-year fixed mortgage rate decreasing to the lowest rate in two months,” said Joel Kan, MBA’s deputy chief economist. “Mortgage applications increased to their highest level in six weeks, but remain at very low levels.”

Applications to refinance a home loan increased 2% for the week and were just 4% lower than the same week one year ago. Rates today are about 75 basis points higher than they were a year ago, but more than twice what they were two years ago when there was a massive refinance boom. Most homeowners with mortgages today have rates far lower than they would get now.

Applications for a mortgage to purchase a home increased 4% week to week but were still 20% lower than one year ago.

“The average loan size on a purchase application was $403,600, the lowest since January 2023. This is consistent with other sources of home sales data showing a gradually increasing first-time homebuyer share,” Kan added.

While mortgage demand is moving slightly higher off historic lows, the housing market is still extremely weak. October sales of existing homes dropped to the lowest level in 13 years, according to a new report from the National Association of Realtors.

Mortgage rates moved slightly lower this week, but analysts are not expecting any major moves in the near future.

“The market has clearly shifted gears into holiday mode with light volume and liquidity greasing the skids for random volatility without any fundamental justification,” wrote Matthew Graham, chief operating officer of Mortgage News Daily.

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