Demand for mortgage refinancing jumps as interest rates fall

After rising more than 8% in October, mortgage interest rates are falling toward 7% again, representing a jump in the refinancing market.

Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) fell to 7.17% from 7.37%, with scores falling to 0.60 from 0.64 (including origination fees). For loans with interest, 20% down payment, according to Mortgage Bankers Association. This was the lowest level since August.

As a result, home loan refinancing applications increased 14% from the previous week and were 10% higher than the same week one year ago.

“Slowing inflation and financial markets anticipating the potential end of the Fed’s rate hike cycle are behind the recent decline in interest rates,” said Joel Kahn, MBA vice president and deputy chief economist. “Refinancing applications had their strongest week in two months and increased year over year for the second straight week for the first time since late 2021.”

However, the actual level of refinancing demand remains very low, given that many borrowers refinanced in the early years of the Covid pandemic, when interest rates reached more than a dozen record lows.

“The recent increases may indicate that 2023 was the low point in this cycle for refinancing activity, consistent with our expectations,” Kahn added.

Home mortgage applications fell 0.3% during the week and were 17% lower than the same week a year earlier. Prospective buyers continue to struggle with high prices and low inventory of homes for sale.

Mortgage rates continued to fall this week. The government’s important monthly employment report, expected to be released on Friday, could continue or reverse that trend, depending on what it says about the state of the economy.

“November was an excellent month for mortgage rates, and December is picking up where they left off,” said Matthew Graham, chief operating officer of Mortgage News Daily. He noted that the weaker-than-expected report on jobs released on Tuesday helped continue this trend.

“The labor market has been very hot. Job openings are still ‘above trend’, in fact, but by cooling down at a faster pace, there are positive effects on interest rates,” Graham added.

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