Despite near record low mortgage rate levels, refinancing response was very muted for the week ending May 28. 

According to the Mortgage Bankers Association (MBA), the Refinance Index rose just 2.4% to ~3325.  Still, it is at its highest level since early October. 

As a percent of total applications, refinancing share was 73.8% compared with 72.2% in the previous week.

Much lower mortgage rates are needed to encourage a significant refinancing response. Barclays Capital analysts, for example, said the no-point mortgage rate needs to drop below 4.75%. 

Given the stickiness of primary/secondary spreads, they estimate the 10-year note would have to drop to below 2.80% to achieve this. Other factors contributing to the limited response is burnout, low home valuations, tight credit and high unemployment.

For the month of May, the Refinance Index averaged 36% higher than in April as mortgage rates averaged 4.89% compared to 5.10% previously.  At this time, the outlook is for speeds to increase 10% in June (reported in July) as a result, along with a higher number of collection days — 22 versus 20 in May. 

Meanwhile, purchase activity continued to adjust to the expiration of the homebuyers tax credit. The Purchase Index slipped 4.1% to ~179. 

Michael Fratantoni, the MBA's vice president of research and economics, said, "Purchase applications are now almost 40% below their level four weeks ago." It also stands at its lowest level since April 1997, the MBA noted.   

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