Mortgage refinance demand surged 6%, as interest rates dropped

Total mortgage applications rose 0.9%, led by an increase in refinancing demand

Mortgage rates fell again last week, and while that did little to spur demand from homebuyers, it prompted homeowners to look for savings on their monthly payments.

Applications for home loan refinance rose 6% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. However, the volume was still 85% lower than the same week a year ago.

The average contract rate for 30-year fixed-rate mortgages with matching loan balances ($647,200 or less) fell from 6.42% to 6.34%, with points falling from 0.64 (including the setup fee) to 0.59 for loans payment decreased by 20%.

A property for sale in Monterey Park, California

Frederic J. Brown | AFP | Getty Images

Mortgage applications to buy a home fell 0.1% on the week and were 36% lower than the same week a year ago. This is historically the slowest time of year for housebuilding, and while rates are lower than a month ago, they’re still more than double what they were a year ago.

“The latest housing market data shows that homebuilders are slowing the pace of new construction in response to low traffic, and we expect this demand weakness to continue in 2023 as the US is likely to enter a recession,” said Mike Fratantoni, chief economist at MBA. “However, if mortgage rates continue to trend lower, as we forecast, more buyers are likely to return to the market later in the year as affordability improves with both lower interest rates and slower home price growth.”

But interest rates started higher this week and continued to rise sharply on Tuesday after the Bank of Japan shocked global markets by changing monetary policy. A separate survey by Mortgage News Daily showed that the average interest rate on the 30-year lock-in jumped 11 basis points.

“Something like this is unlikely to have a lasting impact on US interest rates in the near term,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “Also, the impact was greater than would otherwise have been due to the season.”

Interest rates are now almost 25 basis points higher than they were on Thursday of last week.