Demand for Mortgage Refinancing Jumps 18% as Rates Fall

Homeowners and potential homebuyers responded swiftly to last week's decline in mortgage rates.

‍

The volume of mortgage applications, including refinances and purchases of homes, jumped 7.4% last week, compared with the previous week, according to the seasonally adjusted mortgage application index compiled by the Mortgage Bankers Association.

‍

During the quarter, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance ($726,200 or less) decreased to 6.18% from 6.19%, with points falling from 0.65 to 0.64 (including the origination fee) for loans with a 20% down payment. During the same week one year ago, that rate was 3.83%.

‍

Refinance demand surged 18% week-to-week as rates fell to their lowest level since early September, but was still 75% below last year's same week. As a percentage of total mortgage applications refinances increased to 33.9% from 31.2% last week. During the week of March 12-18, mortgage applications for purchases of homes increased by 3%, and they were 37% lower than they were one year ago during the same week.

‍

“Purchasing activity that was halted last year due to rising rates is gradually returning as rates ease and housing demand remains strong, driven by demographics and a strong labor market,” Joel Kan, MBA economist, said. It has also been reported that the average loan size on a purchase application has increased to $428,500 - the largest average since May 2022, according to Kan.

‍

“This upward trend is a sign that the recent upward trend in purchase activity continues to be skewed toward larger loan sizes, which translates to less first-time homebuyer activity, as entry-level housing remains undersupplied, and buyers in many markets find it difficult to afford a home,” said Kan.

‍

In response to an unexpectedly strong employment report that was released by the Federal Reserve on Friday and the remarks of Federal Reserve Chair Jerome Powell on Tuesday that the central bank might continue to increase interest rates, mortgage rates have rebounded dramatically this week.

‍

Powell explained that the reality is that we will react to the data in a predictable way. It may well be the case that we have to do more and raise interest rates in the future than is currently expected if we continue to get, for instance, strong labor market reports or higher inflation reports.

‍

A survey by Trade Algo found the 30-year fixed rate increased by nearly half a point between last Thursday and Tuesday.