A recent decline in mortgage rates has sparked a surge in homeowners looking to refinance their home loans and reduce their monthly payments. According to the Mortgage Bankers Association, the refinance index, which tracks home loan application volume, jumped 16% last week to its highest level in two years. Refinance applications were up nearly 60% compared to the same week last year.
While overall home loan applications increased last week to their highest level since January, the rise was primarily driven by the significant increase in refinance applications. However, applications for loans to purchase a home only saw a modest 0.8% increase from the previous week and were down approximately 11% from a year ago.
Despite the lower borrowing costs, many potential homebuyers are still finding mortgage rates too high, especially given the current record-high housing prices and limited inventory in the market. The average rate on a 30-year mortgage stood at 6.73% last week, the lowest level since early February, as reported by Freddie Mac.
Following a peak of 7.79% in October, mortgage rates have remained around 7% this year, more than double the rates from three years ago. These elevated rates have deterred many homebuyers, contributing to the ongoing housing slowdown now entering its third year.
However, recent signs of easing inflation and a cooling job market have led to expectations that the Federal Reserve may cut its benchmark interest rate next month. This has resulted in a slight decrease in mortgage rates in recent weeks, with experts predicting a potential increase in refinance applications and volumes if the trend continues.
While mortgage rates will need to drop further to incentivize more homeowners to refinance, the expectation of continued rate decreases has boosted shares in mortgage companies in the third quarter. Rocket Cos. saw a 28.5% increase, United Wholesale Mortgage gained 19.5%, and LoanDepot rose by 47.9%.
