Refinance demand surged last week amid interest rates falling to their lowest level in nearly two months.

The average 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less fell to 7.01%, down from 7.08% the week prior. Points, including the origination fee, also fell to 0.60 from 0.63 for loans with a 20% down payment. Mortgage points are discounts borrowers can sometimes pay upfront in return for a lower rate.

The lower financing rates drove an increase in refinance demand, with applications up 7% week over week. For comparison, total mortgage applications rose just 1.9% during that same period, with applications for a mortgage to purchase a home down 1% as buyers continue to face a shrinking housing supply.

Despite rates being slightly higher compared to a year ago, refinancing applications were up 21% year over year. According to Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, the recent drop in rates may have prompted last week’s surge in activity.

“Rates coming down from recent highs spurred some borrowers to act, with increases across both conventional and government refinance applications,” said Kan in an MBA news release.

While it remains below its historical average, Kan says VA refinances have experienced a “double-digit” increase for three weeks.

Earlier this month, the Federal Reserve once again paused rates at 5.3%, where they have remained since August 2023. Still, a recent Reuters poll suggests the majority of economists expect the central bank to make two rate cuts this year, beginning in September, as previously reported by The Dallas Express.