Homeowners rush to refinance as mortgage rates tumble
Mortgage rates fell across the board last week, driving mortgage application volume to its highest level since January, the Mortgage Bankers Association (MBA) said in its latest report.
The average contract interest rate for a 30-year fixed-rate mortgage fell to 6.55% from 6.82% the previous week, marking the lowest rate since May 2023, according to MBA’s weekly applications survey.
As a result of lower rates, mortgage application activity surged 6.9% week over week.
“The 30-year fixed rate fell to 6.55%, reaching its lowest level since May 2023, following doveish communication from the Federal Reserve and a weak jobs report, which added to increased concerns of an economy slowing more rapidly than expected,” said Joel Kan, MBA’s deputy chief economist.
The refinance index hit its highest level since September 2022, up 16% from the previous week as homeowners took advantage of lower interest rates.
“This brought refinance activity back to the highest level seen since September 2022, when mortgage rates began approaching 7% for the first time since 2002,” said Fannie Mae chief economist Doug Duncan (pictured). “If the recent drop in longer-term rates is sustained, then we expect to see another uptick in refinance applications and subsequent refinance mortgage volumes this week.”
Kan noted that refinance applications increased across all loan types, particularly for VA loans, and were almost 60% higher than it was at this time last year and were at their highest level in two years.
The refinance share of mortgage activity increased to 41.7% of total applications from 38.2% the previous week. The adjustable-rate mortgage (ARM) share of activity also rose, reaching 6.3% of total applications. The FHA share of total applications was up to 13.4%, VA share increased to 14.3%, while the USDA share of total applications dropped slightly to 0.4%.
Read next: MBA slams CFPB’s focus on closing costs as misguided
While refinance applications soared, purchase applications only saw a 1% increase. This suggests that potential homebuyers are cautiously monitoring the market, waiting for further interest rate declines before making purchasing decisions.
“Despite the downward movement in rates, purchase activity only saw small gains, with an increase in conventional purchase applications offset by decreases in government purchase applications,” Kan said. “For-sale inventory is beginning to increase gradually in some parts of the country and homebuyers might be biding their time to enter the market given the prospect of lower rates.”
Overall, the decrease in mortgage rates has stimulated refinancing activity and slightly increased purchase applications, reflecting a cautious optimism among homebuyers amid fluctuating economic signals.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
