By Evan Sully

(Reuters) – U.S. applications for home mortgages increased last week on a pickup in homeowners seeking to refinance their loans, but requests for loans to purchase a house fell to a three-month low amid an acute shortage of housing stock that is driving up prices.

The Mortgage Bankers Association (MBA) said on Wednesday its seasonally adjusted Purchase Index increased 1.2% from a week earlier, reflecting a 4% rise in applications for refinancing. Refinancing activity has ticked higher in recent weeks as mortgage interest rates have pulled back from their recent highs.

The purchase index decreased 4% from a week earlier to the lowest level since February, which may signal further headwinds for home sales in the months ahead.

“A decline in purchase applications was seen for both conventional and government loans,” Joel Kan, an economist at the MBA, said in a statement. “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 housing market has been a strong performer in the economy throughout the COVID-19 recession, which started in February 2020. But supply constraints are slowing momentum. U.S. existing home sales fell to a seven-month low in March, but may have steadied in April, data due out Friday is expected to show.

The average contract interest rate for traditional 30-year fixed-rate mortgages increased to 3.15% last week from 3.11% in the prior week, but rates remain roughly 20 basis points below their recent highs from early April.

“Despite still relatively low rates, scarce inventory and soaring home prices are eroding affordability and putting homebuying out of reach for many households,” said Lydia Boussour, lead economist at Oxford Economics in New York.