Demand for big mortgages is shrinking as home prices moderate and expensive houses linger on the market

Consumers are less likely to buy a home if they worry about inflation. The average loan size fell as well as mortgage demand.

The Mortgage Bankers Association reported that mortgage applications to purchase a home fell 4% for the week and were 18% lower than a year ago. An adjustment was made for the July Fourth holiday.

Higher mortgage rates have caused buyers to pull back, but rates held steady last week. The average contract interest rate for 30-year fixed mortgages with conforming loan balances stayed at 5.74%, with points decreasing to 0.59 from 0.65 for loans with a 20% down payment.

"Purchase applications for both conventional and government loans continue to be weaker due to the combination of higher mortgage rates and the worsening economic outlook." The average purchase loan size was $415,000 last week, pulled lower by the potential moderation of home price growth and weaker purchase activity at the upper end of the market.

The number of home loan applications rose 2% for the week but were 80% lower than a year ago. The average mortgage rate last year was 3.05%. Most of the remaining borrowers already have lower rates on their mortgage and could benefit from a refinancing.