An ‘Open House’ sign is displayed as potential home buyers arrive at a property for sale in Columbus, Ohio.

Ty Wright | Bloomberg | Getty Images

Record-low mortgage rates may now be a headline of the past.

Now, several weeks of rising rates are dousing what was incredibly high demand for refinancing. That pulled total weekly mortgage application volume down 1.9% last 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 ($510,400 or less) increased to 2.92% from 2.88%, with points increasing to 0.37 from 0.33 (including the origination fee) for loans with a 20% down payment. The rate was 95 basis points higher one year ago.

The average rate on the 15-year fixed rose for the first time in seven weeks, to 2.48%.

With higher rates now offering less potential savings, applications to refinance a home loan fell 5% for the week but were 87% higher than a year ago. That annual comparison had been more than 100% just last week.

“Market expectations of a larger than anticipated fiscal relief package, which is expected to further boost economic growth and lower unemployment, have driven Treasury yields higher the last two weeks,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “After a post-holiday surge of refinances, higher rates chipped away at refinance demand.”

Demand from homebuyers, however, increased despite the higher rates. Mortgage applications to purchase a home rose 3% for the week and were 15% higher than a year ago. The coronavirus pandemic spurred strong demand for larger, suburban homes. Despite the vaccine rollout, that demand does not appear to be abating. The biggest hurdles for homebuyers right now are high prices and record-low inventory of homes for sale.

“Homebuyers in early 2021 continue to seek newer, larger homes,” Kan said. “The average loan size for purchase loans jumped to $384,000, the second highest level in the survey,” which dates to 1990.

The incoming Biden administration is preparing to make multiple moves in the housing market that could favor both homebuyers and builders. Mortgage rates, however, started the week flat, as traders are likely awaiting the first major economic policy announcements before making a move.