A sudden decrease in mortgage rates led to a significant increase in demand, although it might be temporary.

• The Mortgage Bankers Association's seasonally adjusted index showed a nearly 16% increase in total mortgage application volume compared to the previous week.
• Last week, the average interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased from 7.07% to 7.02%.
• The number of applications to refinance a home loan increased by 28% in the most recent week, as compared to the previous week.

The Mortgage Bankers Association's seasonally adjusted index showed a nearly 16% increase in total mortgage application volume last week, due to a drop in mortgage rates.

But rates jumped back up again after a stronger-than-expected monthly employment report Friday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 7.02% from 7.07%, with points unchanged at 0.65 (including the origination fee) for loans with a 20% down payment. However, rates jumped 12 basis points on Friday, according to a separate survey from Mortgage News Daily.

The number of applications to refinance a home loan increased by 28% last week compared to the previous week and were also 28% higher than the same week one year ago.

According to Mike Fratantoni, senior vice president and chief economist at the MBA, a strong increase in refinance activity was observed among VA borrowers when lower rates were offered earlier in the week.

The number of mortgage applications for purchasing homes increased by 9% during the week, but was still 12% lower than the same week a year ago. Despite the rise in interest rates and home prices, homebuyers are facing a lean inventory. According to a monthly survey by Fannie Mae, 86% of consumers believe now is not a good time to buy a home.

Fratantoni stated that while home inventory levels are still low historically, they have increased significantly from last year at this time, which is good news for many prospective homebuyers who have been frustrated by the lack of homes on the market.

This week, mortgage rates remained relatively stable as investors awaited the release of the monthly inflation report, consumer price index, and the Federal Reserve meeting, both of which were scheduled for later Wednesday.

"According to Matthew Graham of Mortgage News Daily, the Fed will not cut or hike rates, but will update their outlook for the rest of the year and future years. The Consumer Price Index (CPI) is the most significant event of the day, but the Fed's interpretation of the data could either accelerate or push back against the morning momentum. Regardless, volatility is more likely to occur than it has so far this week."