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Mortgage demand falls for the second straight week, signaling a potential slowdown in the housing recovery

The surge in mortgage demand from homebuyers over the past two months appears to be waning, even as mortgage rates continue to drop.

Mortgage applications to purchase a home fell for the second straight week, down 1% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Purchase volume was still 15% higher than one year ago, but that annual comparison is now shrinking. 

“The weakening in activity is potentially a signal that pent-up demand is starting to wane and that low housing supply is limiting prospective buyers’ options,” said Joel Kan, an MBA economist. “The average purchase application loan size increased to a record high in our survey — more proof that tight inventory conditions are leading to faster price growth.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 decreased to 3.29% from 3.30% last week. Points including the origination fee increased to 0.36 from 0.32 for loans with a 20% down payment. That is another record low.

“Investors are contemplating the risks of the recent resurgence of Covid-19 cases to the labor market and economy, and Treasury rates, and mortgage rates are moving lower as a result,” said Kan.

Refinance demand, which is most sensitive to interest rates, fell 2% for t