Despite only a very slight improvement in 30-year fixed-rate mortgages, applications to refinance home loans spiked last week because of the downturn from a 23-year high.
The surge in applications is the most since 2020. The sudden drop in rates is likely due to expectations that the Fed will begin cutting interest rates and may start as early as September.
Despite the slight improvement, the current rates still leave most homebuyers priced out of the market.
“The slight decline in mortgage rates of late, following data pointing to gradually slowing economic growth, has not been enough to overcome the significant affordability constraints imposed on would-be homebuyers,” said Doug Duncan, senior vice president and chief economist at Fannie Mae, at the end of July, reported Fox Business. “As such, despite more homes being listed for sale, actual home sales have not picked up.”
“The housing market continues to wait for affordability to improve, even as the supply of new and existing homes for sale slowly rises,” he added.
CNBC reports on the surge in mortgage refinancing. Here’s the start of the story:
It appears to have taken a few weeks for current homeowners to realize mortgage rates had dropped dramatically. And when they did, they acted.
Applications to refinance a home loan surged 35% last week, compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. It was up a whopping 118% when compared with the same week one year ago.
This, even though the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) fell very slightly, to 6.54% from 6.55%, with points decreasing to 0.57 from 0.58 (including the origination fee) for loans with a 20% down payment.
While rates dropped just 1 basis point last week, they were down 33 basis points in the past four weeks. They were also 62 basis points lower than the same week a year ago.
“The refinance index also saw its strongest week since May 2022, driven by gains in conventional, FHA, and VA applications,” said Joel Kan, an MBA economist in a release.
Applications for a mortgage to purchase a home rose just 3% for the week and were still 8% lower than the same week one year ago.