Sky-high home prices mean demand for ever bigger mortgages, but those prices may also be causing a pullback in homebuying overall.

Mortgage applications to purchase a home fell 4% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was just 2% higher than the same week one year ago, when the housing market was just starting to come back after the pandemic shut it down.

“A decline in purchase applications was seen for both conventional and government loans,” said Joel Kan, an MBA economist. “There continues to be strong demand for buying a home, but persistent supply shortages are constraining purchase activity, and building material shortages and higher costs are making it more difficult to increase supply.”

The extreme shortage has prices continuing to climb at the fastest pace in over 15 years, and as a result, average purchase loan balances are climbing in tandem. Last week, that average hit $411,400 — the highest since February.

Buyers who are able to stay in the market also faced higher mortgage rates last week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.15% from 3.11%, with points increasing to 0.36 from 0.32 (including the origination fee) for loans with a 20% down payment.

While slightly higher, the rate was still lower than it was in March, and that gave borrowers looking to save on monthly payments an opportunity. Applications to refinance a home loan increased 4% from the previous week but were 2% lower than the same week one year ago. The refinance share of mortgage activity increased to 63.3% of total applications from 61.3% the previous week.

“Ongoing volatility in refinance applications is likely if rates continue to oscillate around current levels,” Kan said.

Mortgage rates have been in a holding pattern this week, with no significant economic reports or news to move them one way or another.