Mortgage applications increased 0.8 percent from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey.

The Market Composite Index, a measure of mortgage loan application volume, increased 0.8 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 1 percent compared with the previous week.

The Refinance Index increased 4 percent from the previous week and was 124 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. The unadjusted Purchase Index decreased 7 percent compared with the previous week and was 26 percent higher than the same week one year ago.  

"Mortgage rates are closing the year at record lows. The 30-year fixed rate - at 2.86 percent - is a full percentage point below a year ago. Last week's increase in refinance applications was driven by FHA and VA activity, while conventional refinances saw a slight decline. Overall refinance activity was 124 percent higher than in 2019, as borrowers continue to seek lower monthly payments or different loan terms," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

"Purchase applications decreased for the second time in three weeks, as both conventional and government applications saw a drop-off. Despite the decline, purchase applications remained 26 percent higher than the same week a year ago, and the average loan balance reached another record high."  

Added Kan, "There are still signs of relative strength in the housing market as 2020 ends. However, housing affordability will be worth monitoring next year. The lower loan size segment of the market - particularly for entry-level and first-time buyers - continues to be impacted by rapidly increasing home prices and tight inventory."  

The refinance share of mortgage activity increased to 74.8 percent of total applications from 72.7 percent the previous week.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 2.86 percent from 2.85 percent.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.43 percent from 2.49 percent.