Homeowners Rush to Refinance Mortgages Amid Low Interest Rates

Mortgage rates dropped sharply last week, driving demand from current homeowners hoping to save on their monthly payments. However, this did little to excite potential homebuyers.

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Total mortgage application volume rose just 1.2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. This is likely due to the fact that interest rates have been on the rise in recent weeks.

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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased last week to 6.42% from 6.58%, with points remaining at 0.73 (including the origination fee) for loans with a 20% down payment. According to Freddie Mac, one year ago that rate was 3.52%.
Mortgage rates declined last week in response to data indicating a weakening economy and slowing wage growth. All loan types surveyed saw a decline in rates, according to Joel Kan, an MBA economist.

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The decrease in rates led to a 5% increase in applications to refinance a home loan. However, volume was still 86% lower than the same week one year ago. Even with rates lower than their previous high of over 7% last fall, at the current rate just 270,000 borrowers could benefit from a refinance, according to Black Knight, a mortgage technology and analytics firm. A year ago, with the rate half what it is now, roughly 7 million borrowers could benefit.

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Mortgage applications to purchase a home fell 1% last week, and are now 44% lower than they were at this time last year. This is the lowest reading since 2014. Buyers today are facing higher interest rates and falling supply, as well as prices that are coming down. Some may be waiting to see how low prices go before making a purchase.

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This week, mortgage rates have remained relatively stable. However, Thursday's release of the monthly consumer price index could cause rates to drop if it shows that inflation is cooling down.