Mortgage applications decreased last week as fewer homeowners sought to refinance their loans, offsetting a modest rise in applications for loans to buy homes.

The Mortgage Bankers Association (MBA) said on Wednesday its seasonally adjusted Purchase Index decreased 4.2% in the week ended May 21 from a week earlier, reflecting a 7.2% decline in applications for refinancing.

The purchase index increased 1.7% from a week earlier.

"Demand is robust throughout the country, but homebuyers continue to be held back by the lack of homes for sale and rapidly increasing home prices," Joel Kan, an economist at the MBA, said in a statement.

New home sales dropped 5.9% to a seasonally adjusted annual rate of 863,000 units in April as prices surged amid a tight supply of houses, the Commerce Department said on Tuesday. Last week, the National Association of Realtors reported that home resales dropped for a third straight month in April.

"Housing is booming. The sector is so strong, there simply is not enough available supply," said Joseph Lavorgna, chief U.S. economist at Natixis CIB. "This is weighing on home sales. In turn, home prices are accelerating. Eventually, more housing will be brought to market, but it will take time."

The average contract interest rate for traditional 30-year fixed-rate mortgages increased to 3.18% last week from 3.15% the prior week.