Despite a slight drop in mortgage rates last week, mortgage applications fell to their lowest level since December 1996. For the week that ended Sept. 1, mortgage applications dropped  2.9% from the prior week, according to data from the Mortgage Bankers Association. 

“Both purchase and refinance applications fell, with the purchase index hitting a 28-year low, as prospective buyers remain on the sidelines due to low housing inventory and elevated mortgage rates,” said Joel Kan, MBA’s vice president and deputy chief economist.

Meanwhile, the “refinance index dropped to its lowest level since January 2023, driven by a 6% decline in conventional refinances,” added Kan. The refinance index decreased 5% from the previous week and was 30% lower than the same week one year ago.

Though mortgage rates came down to 7.18% last week, they remained more than a full percentage point higher than a year ago. Mixed data on the health of the economy and signs of a cooling job market has not done enough to bring them down, noted Kan.

The refinance share of mortgage activity decreased to 30% of total applications from 30.1% the previous week. Meanwhile, the adjustable-rate mortgage (ARM) share of activity decreased to 6.7% of total applications from 7.5% last week.

At HousingWire’s Mortgage Rates Center, Optimal Blue had 30-year fixed-rate mortgages at 7.15% on Tuesday. At Mortgage News Daily, 30-year fixed-rate mortgage rates were at 7.21%.

The Federal Housing Administration loans’ share increased to 13.7% from 13.2% the week prior. The U.S. Department of Veteran Affairs loans’ share decreased to 11.3% from 11.6% last week. Lastly, the U.S. Department of Agriculture loans’ share rose  to 0.6% from 0.4% a week prior.

The average contract interest rate for 5/1 ARMs fell to 6.33% from 6.48% a week prior.