Despite a rise in mortgage applications, demand for home mortgage loans is down. Even though mortgage interest rates are down this week from the previous week, there is still reluctance in the market for mortgages. One of the reasons that mortgage applications are up even though actual demand is down, is reported by USA Today:

Some market analysts say mortgage application data has been
artificially inflated in recent months because prospective borrowers
file multiple applications to obtain a single loan due to widespread
tightening of lending standards.