Mortgage refinance demand jumps 14% as rates fall to the lowest point since August, driving a surge in refinance applications, while purchase applications decline amidst high prices and low inventory.
Decline in Mortgage Rates Boost Refinance Market
After a surge in October, mortgage rates have fallen back to about 7%, prompting a jump in the refinance market. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 7.17% from 7.37%, driving a 14% increase in refinance applications from the previous week.
Reasons Behind the Decline in Rates
The decline in rates is attributed to slower inflation and markets anticipating the potential end of the Fed’s hiking cycle. This has led to the strongest week for refinance applications in two months and an increase on a year-over-year basis for the second consecutive week for the first time since late 2021.
Low Refinance Demand Despite Rate Decline
Despite the decline in rates, the level of refinance demand remains relatively low, as many borrowers already refinanced during the early stages of the Covid pandemic when rates hit record lows. Recent increases may signal that 2023 was the low point in this cycle for refinance activity.
Impact on Mortgage Purchase Applications
While refinance applications surged, applications for mortgage purchase loans fell by 0.3% for the week and were 17% lower than the same week a year earlier. Potential homebuyers continue to face challenges of high prices and low inventory of homes for sale.
Market Expectations and Future Trends
Mortgage rates continued to move lower, with the upcoming employment report expected to further influence the trend. A softer-than-expected report on job openings contributed to the positive implications for interest rates, indicating potential for continued decline.