Mortgage applications fell off last week despite a two-month low in rates, the Mortgage Bankers Association (MBA) reported.

MBA’s adjusted composite index that measures application volume declined 1.2% for the week ending on Feb. 21 and the unadjusted index was down 4% compared to the prior week.  The week included the President’s Day holiday.

The refinance index dropped 4% from the previous week but was 45% higher than a year ago. The adjusted purchase index remained the same. On an adjusted basis, the index was down 5% but was 3% higher than a year ago.

The new readings came as mortgage rates declined to 6.88%, the lowest level since mid-December.

Joel Kan, MBA’s deputy chief economist, called seven-day refinance activity “weak” despite lower rates, but noted the large year-over-year increase in refinance volume. Also, he said, for-sale inventories have increased ahead of the spring buying season.

“Increasing for-sale inventory in some markets has provided prospective buyers more options as we approach the spring homebuying season,” Kan said.