• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.84% from 7.02%
• Applications to refinance a home loan, which are most sensitive to weekly rate moves, rose 12% for the week and were 5% higher than the same week one year ago.
• Applications for a mortgage to purchase a home rose 5% for the week but were still 11% lower compared with the year before.

Mortgage rates swung slightly lower last week, fueling a significant jump in mortgage demand for the second straight week. Total application volume rose 7.1%, compared with the previous 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 ($766,550 or less) decreased to 6.84% from 7.02%, with points falling to 0.65 from 0.67 (including the origination fee) for loans with a 20% down payment.

"Mortgage rates dropped below 7% last week for most loan types because of incoming economic data showing a weaker service sector and a less robust job market, with an increase in the unemployment rate and downward revisions to job growth in prior months," said Mike Fratantoni, senior vice president and chief economist at the MBA.

As a result, applications to refinance a home loan, which are most sensitive to weekly rate moves, rose 12% for the week and were 5% higher than the same week one year ago.

"While these percentage increases are large, the level of refinance activity remains quite low, and we expect that most of this activity reflects borrowers who took out a loan at or near the peak of rates in the past two years," added Fratantoni.

Applications for a mortgage to purchase a home rose 5% for the week but were still 11% lower than a year ago. Homebuyers are up against more than just high interest rates. They are looking at sky-high home prices and a still lean supply of houses for sale. While more inventory is coming onto the market with the spring season, it is not enough to meet the demand, especially for smaller, starter homes.

Mortgage rates rose slightly at the start of this week, after a government report on consumer prices came in higher than expected Tuesday. However, the increase was smaller than previous reactions to similar economic data.

"It suggests the market is starting to see more convincing signs that inflation and the economy stand a better chance deliver rate-friendly news in the near future as opposed to news that would cause a big resurgence," said Matthew Graham, chief operating officer at Mortgage News Daily.