Whereas mortgage applications decreased by 4.8% from one week earlier, according to Mortgage Banker’s Association, a new report from analytics firm Capital Economics suggests that it is not a sign that housing demand is tailing off.

With mortgage affordability set to remain favorable and more Americans employed, applications are set to rise this year, according to the report.  

In February, total mortgage applications rose by 17% month-over-month, preceded by a month-over-month increase of 10.7% in January.

The improvement was driven by a surge in of applications for refinance, which increased by 34.1%.

The report explains the reason for the increase in refinancing, saying the turmoil in financial markets in February led to a flight to safe assets, which pushed the 10-year Treasury yield below 1.8% during the month. In turn, that caused the 30-year fixed mortgage rate to fall to 3.86%, causing homeowners to refinance.

Whereas applications for home purchase fell 5.2% during February, this is not a signal that housing demand is dwindling, the report states. The sharp upwards and downwards moves month-to month are not unusual.

Looking at more stable annual rates of growth shows an acceleration in February to 28.3%, up from 20.2% in January. The weekly data shows applications had little change in the last week of the month, disputing the development of a downward trend.

The conditions are in place for housing demand to rise gradually in the coming months, Capitol Economics stated.

Mortgage interest rates are close to record lows, and while they are likely to rise slowly during the year, affordability will remain favorable. Access to mortgage finance improves as banks gradually loosen lending criteria.

Further, the improvement of the labor market will also give more stability to the market as homebuyers become more confident in buying a home, they report.