Mortgage demand fell for the second week in a row, as low inventory and high home prices continue to weigh on the housing market.

Mortgage applications decreased 1.8% last week, according to the Mortgage Bankers Association’s seasonally adjusted index, falling to the lowest level since the beginning of 2020, before the coronavirus pandemic started to take a toll on the economy.

Both refinance and purchase applications took a hit, even as mortgage rates slipped.

Mortgage applications to refinance a home dropped 2% for the week and were 8% lower than a year ago. Refinance applications have trended lower than 2020 levels for the past four months, according to the MBA.

Home purchase applications dropped 1% for the week and came in 14% lower than a year ago.  

“Swift home-price growth across much of the country, driven by insufficient housing supply, is weighing on the purchase market and is pushing average loan amounts higher,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Falling mortgage rates didn’t spur demand. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) dropped 5 basis points to 3.15, with points decreasing to 0.38 from 0.39 (including the origination fee) for loans with a 20% down payment.

Mortgage rates loosely follow the yield of the 10-year Treasury. Mortgage rates dipped despite good economic news, Kan added.

“Treasury yields have been volatile despite mostly positive economic news, including last week’s June jobs report, which showed ongoing improvements in the labor market. However, rates continued to move lower – especially late in the week,” he said. “The 30-year fixed rate was 11 basis points lower than the same week a year ago, but many borrowers previously refinanced at even lower rates.”