Applications are down from the prior week – but skyrocketing compared with 2023
Mortgage refinancing slipped last week amid an overall decline in application activity, but homeowners’ appetite for the refi market continues to surge compared with last year.
In 2023, rising mortgage rates and uncertainty over their eventual landing spot weighed down on refinancing activity, making no sense for homeowners who had secured a mortgage at much lower costs in the prior years.
But rates have dipped this year, fueled by expectations of future Federal Reserve rate cuts and signs of a slowing economy – and that’s helped drive a 159% year-over-year jump in refinancing activity as measured by the Mortgage Bankers Association (MBA) Refinance Index.
Growing enthusiasm for refinances is also being noted by mortgage professionals on the ground. “We’ve finally started to see those different loans coming back again,” James Baublitz (pictured top), vice president, capital markets, at First Home Mortgage told Mortgage Professional America.
“There are a lot of lenders who are staffed accordingly to do a certain amount of volume, and we’re seeing a great deal of competition again. That’s great news for the borrower, the opportunity to potentially get a very competitive rate. So in the last couple of weeks – especially on the government side, VA and FHA loans – we’re seeing an uptick there and certainly that’s a trend we expect to continue.”
Interest in a refinance isn’t necessarily just limited to cutting rates, he added, with many borrowers also looking into changing their amortization terms to save on payments.
Mortgage market slowly turning a corner
Improving prospects for the refi space have arrived with the outlook for the overall mortgage market seemingly brightening. Mortgage rates may have registered their first uptick for some time last week, but the general expectation is that they’ll continue inching downwards as 2024 turns to 2025 – and that the days of ever-climbing rates are a thing of the past.
Are homebuying prospects finally improving? First American's latest RHPI shows a 4.4% affordability increase, with mortgage brokers strategizing for a brighter market ahead.https://t.co/D7P2afj3uI
— Mortgage Professional America Magazine (@MPAMagazineUS) October 8, 2024
What’s more, the Fed’s pivot towards rate cuts, which commenced with a bumper 50-basis-point reduction in its last decision, has bolstered confidence that its own funds rate – which influences bond yields – is set for a further decline in the months ahead.
That marks a welcome change from much of the turbulence of the first half of 2024, Baublitz said. “At the beginning of the year, there was all this speculation about how the trends of inflation were going, and when the Fed would finally be done with their restrictive policy regime,” he said. “Then we had a little head-fake where it looked like things were done, and then we went back the other way.
“So I’d say it’s been very volatile at times this year, market liquidity has remained pretty strong… but we’ve had more of a defined trend [recently], which has been nice. We coalesced around the idea that the Fed would begin loosening their restrictive stance at some point, and they just did.”
Are buyers more amenable to higher rates than in the past?
The psychology of borrowers has also changed somewhat in 2024, according to Baublitz, with less alarm around spiking mortgage rates than during previous years.
“Acceptance” might be the wrong word for borrowers’ approach in the current market, he said – but there’s certainly a growing understanding that the rock-bottom rates of the COVID-19 pandemic are not coming back anytime soon.
That means many homebuyers are more amenable to the idea of paying points upfront on their mortgage rate, Baublitz said. “We’re still dealing with slower, constrained inventory and we’re still seeing those types of dynamics, but I think the borrower is just a little bit more comfortable with everything and they’ve kind of gotten through the initial shock and surprise of everything that we saw over the last couple of years,” he explained.
“If you’ve been a borrower who’s been on the fence, you’ve been casually looking and maybe you started the conversation a couple of years ago – maybe you looked last summer but didn’t find anything – you’ve kind of now gotten to the point where it’s like, ‘OK, this really is the market.’”
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