A slight increase in mortgage interest rates was enough to tank refinances and bring down overall demand.

Total mortgage application volume fell 4.2% last week from 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 ($548,250 or less) increased to 3.18% from 3.15%, with points decreasing to 0.35 from 0.36 (including the origination fee) for loans with a 20% down payment.

While the rate increase was small, refinance demand fell 7% for the week and was 9% lower than a year ago. So many borrowers have already refinanced at rates below 3% that there is just not a lot of opportunity left.

The refinance share of mortgage activity decreased to 61.4% of total applications from 63.3% the previous week.

Mortgage applications to purchase a home increased 2% for the week but were 4% lower than a year ago.

“While purchase activity was around 4% lower than a year ago, the comparison is to last spring’s large upswing in activity as pandemic-related lockdowns lifted,” said Joel Kan, an MBA economist. “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.”

Prices for new and existing homes are rising at the fastest clip in nearly two decades, and that has shifted much of the demand to the higher end of the market. Mortgage loan sizes are increasing, hitting new records, and luxury builders like Toll Brothers are reporting continued strong sales.

“We are encouraged by the continued strength of the housing market, which is supported by a long-term supply-demand imbalance, favorable demographics, especially the drive to home ownership among millennials, low mortgage rates, and the greater overall appreciation for one’s home that has emerged out of the pandemic,” Toll Brothers CEO Douglas Yearley said in the company’s quarterly earnings statement released Tuesday.