Applications to refinance a mortgage last week soared as Americans caught on to declining rates.
Mortgage rates fell for a second straight week, spurring a 35% weekly increase in mortgage refinancing applications, according to data from the Mortgage Bankers Association published Wednesday. That’s a whopping 118% rise from a year earlier, and the strongest week for refinancing since May 2022.
Almost half of all mortgage applications in the week ended Aug. 9 were to refinance home loans, with the refinance share of mortgage activity rising to 48.6% of total applications from 41.7% the previous week.
Refinancing a mortgage — replacing an existing mortgage with a new one — allows homeowners to take advantage of lower rates or adjust the length of their loan term.
While high mortgage rates over the past couple of years have depressed refinancing activity, the space is starting to see renewed life. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) fell slightly to 6.54% from 6.55% last week. That comes on the heels of a more dramatic drop a week earlier, following the latest U.S. jobs report that showed the economy had cooled considerably.
“Additionally, purchase applications increased by 3%, with small gains seen across the various loan types, indicating that prospective homebuyers are slowly reentering the market,” said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association.
Economic indicators are spurring welcome activity in the housing market, which has been battered by a combination of increasingly unaffordable homes, high mortgage rates, and low inventory. The annual inflation rate rose 2.9% in July, the smallest 12-month increase since March 2021, the Bureau of Labor Statistics reported Wednesday.
Given the slowing inflation and higher unemployment readings of the last couple of months, the Federal Reserve is expected to carry out its first interest rate cute in more than four years in September. Although mortgage rates are not directly tied to interest rates, any cut will likely cause mortgage pricing to continue to decline.
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Tom Barkin, president of the Federal Reserve Bank of Richmond, said last week at a conference of business economists that the bargain-hunting consumer is at its limit — and this price sensitivity will help bring down prices.
“While inflation is down, prices are still high, and I think consumers have gotten to the point where they’re just not accepting it,” Barkin said. “And that’s what you want: The solution to high prices is high prices.”