Mortgage rates fell slightly last week, but not enough to light a fire under mortgage demand.

Total mortgage application volume decreased 3.1% for the 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 ($548,250 or less) decreased to 3.15% from 3.17%, with points decreasing to 0.34 from 0.39 (including the origination fee) for loans with a 20% down payment.

While rates fell slightly, they were not as low as the record levels we saw last fall, and that is why refinancing demand is not responding. Refinance applications fell 5% last week and were 27% lower than a year ago. The refinance share of mortgage activity decreased to 60.4% of total applications from 61.3% the previous week.

“With fewer homeowners able to take advantage of lower rates, the refinance share dipped to the lowest level since April,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Applications for a mortgage to purchase a home were essentially flat from the previous week and 24% lower than a year ago.

“The large annual decline was the result of Memorial Day 2021 being compared to a nonholiday week, as well as the big upswing in applications seen last May once pandemic-induced lockdowns started to lift,” Kan said.

It was also the result of sky-high home prices. Fewer buyers can now afford a home. This was apparent in the average loan size for purchase applications. It fell to $407,000, below the record $418,000 set in February, but still far above 2020’s average of $353,900.