Weekly Mortgage Refinancing Up 23%
Mortgage Applications Surge as Borrowers Chase Lower Rates, Riskier Loans
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Hawthorn Woods, Illinois – New construction homes increasingly replaced the once rural landscape in Hawthorn Woods, Illinois.Scott Olson | Getty Images
Homeowners are increasingly willing to take on riskier mortgages in pursuit of savings,driving a meaningful increase in mortgage demand. A surge in refinance applications, coupled with renewed interest in adjustable-rate mortgages (ARMs), fueled a sharp rise in overall mortgage activity last week.
Mortgage Applications Jump Nearly 11%
Total mortgage application volume rose 10.9% from the previous week, according to the Mortgage Bankers Association’s (MBA) seasonally adjusted index. This marks a substantial increase in borrower activity.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($806,500 or less) decreased to 6.67% from 6.77%, with points increasing to 0.64 from 0.59.However, this rate remains 13 basis points higher than the same week one year ago.Notably, the average contract interest rate for 5/1 ARMs decreased to 5.80% from 6.06%. ARMs, while offering initially lower rates, adjust to market conditions after a fixed period, making them a riskier option for borrowers.
Refinance Boom Drives Application Increase
Applications to refinance a home loan jumped 23% for the week, representing the strongest week for refinancing since last April. Refinancing now accounts for 46.5% of total mortgage activity,up from 41.5% the previous week.
“As seen in other recent refinance bursts, the average loan size grew substantially to $366,400,” noted Joel Kan, an MBA economist. “Borrowers with larger loan sizes continue to be more sensitive to rate movements.”
Kan also highlighted the growing appeal of ARMs, stating, “Given the relative attractiveness of ARM rates compared to fixed rate loans, ARM applications increased 25 percent to their highest level as 2022, and the ARM share of all applications was almost 10 percent.”
Home Purchase Applications See Modest Growth
While lower rates haven’t sparked a massive influx of homebuyers, applications for a mortgage to purchase a home rose 1% for the week and were 17% higher than the same week one year ago. Despite weakening home prices in many markets,affordability remains a significant challenge as prices remain historically high relative to incomes.
Inflation Report and Rate Outlook
Mortgage rates have remained relatively stable at the start of this week, even following the release of a mixed inflation report. The monthly Consumer Price Index (CPI) showed impacts from tariffs alongside price declines in key categories.
Matthew Graham, chief operating officer at Mortgage News Daily, explained, “The odds of a Fed rate cut actually improved for September. Shorter-term bonds also improved… But longer-term bonds (which includes the bonds that dictate mortgage rates) held steady.” This suggests that while expectations for Federal reserve action are shifting, the impact on long-term mortgage rates has been limited so far.
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