US Mortgage Refinance Demand Surges 14% as Interest Rates Hit Lowest Point since August

Mortgage rates are expected to continue their downward trend in December.

The US mortgage market is witnessing a resurgence in refinance demand, marked by a substantial 14% increase in applications. According to a CNBC report, this surge is attributed to a recent drop in mortgage rates, bringing them down to their lowest point since August.

After a robust 8% rise in October, US mortgage rates are again approaching the 7% mark. This decline is proving to be a catalyst for the refinance market, offering homeowners an opportune moment to revisit their mortgage agreements.

US Mortgage Refinance Demand Sees 14% Increase

According to the Mortgage Bankers Association (MBA), the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased from 7.37% to 7.17% last week. Points, including the origination fee, dropped from 0.64 to 0.60 for loans with a 20% down payment, marking the lowest level recorded since August and indicating a significant shift in the lending landscape.

In response to the rate changes, refinance applications experienced a 14% increase from the previous week. Impressively, this figure stands 10% higher than the same week a year ago.

MBA vice president and deputy chief economist Joel Kan attributed the trend to slower inflation and financial markets anticipating a potential end to the Federal Reserve’s hiking cycle.

“Slower inflation and financial markets anticipating the potential end of the Fed’s hiking cycle are both behind the recent decline in rates. Refinance applications saw the strongest week in two months and increased on a year-over-year basis for the second consecutive week for the first time since late 2021,” said Kan.

Mortgage Application Witnesses 0.3% Drop

Despite the recent surge, it’s important to note that the overall level of refinance demand remains relatively low. Many borrowers took advantage of historically low rates in the initial years of the COVID-19 pandemic. The MBA vice president suggested that recent increases could signal that 2023 was the low point in this cycle for refinance activity.

While refinance applications are on the rise, the same cannot be said for mortgage applications for home purchases, which fell by 0.3% for the week.

Comparatively, these applications are 17% lower than the same week a year earlier as potential homebuyers in the US continue to face challenges in the form of high prices and a shortage of homes for sale.

Mortgage Rates Expected to Continue Downward Movement

Mortgage rates are expected to continue their downward trend in December. Matthew Graham, chief operating officer at Mortgage News Daily, said a softer-than-expected report on job openings has contributed to this trend. Graham emphasized that the labor market, while still ‘above-trend’, has shown positive implications for interest rates by cooling off faster.

“The labor market had been running too hot. Job openings are still ‘above-trend,’ but by cooling off at a faster pace, there are positive implications for interest rates,” said Graham.

Meanwhile, the upcoming monthly employment report, expected to be released soon, could either sustain or reverse this trajectory based on its insights into the state of the economy.

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