Mortgage rates came down again last week, and with the expectation that they could fall further, mortgage demand suddenly jumped, especially for refinancing.
The Federal Reserve is expected to make its first interest rate cut in four years on Wednesday, and while mortgage rates don’t follow the Fed exactly, they are influenced by policy. It is likely they will move on Fed Chairman Jerome Powell’s remarks following the decision.
“The most important takeaway is that lower mortgage rates are not only not remotely guaranteed by [the] Fed rate cut. They’re actually already baked in,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “The directionality depends on the dot plot and Powell’s comments in the press conference. Things could go either way and the volatility could be significant.”
Total mortgage application volume rose 14.2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Last week’s results included an adjustment for the Labor Day holiday.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less decreased to 6.15% from 6.29%, with points increasing to 0.56 from 0.55, including the origination fee, for loans with a 20% down payment. That is the lowest rate since September 2022 and is 116 basis points lower than it was the same week one year ago.
“Application activity was up significantly last week, as market expectations of a rate cut from the Fed pulled mortgage rates lower,” said Joel Kan, an economist with the Mortgage Bankers Association.
Applications to refinance a home loan jumped 24% from the previous week and were 127% higher than the same week one year ago. Most of those applicants likely purchased their homes in the past two years, when rates rose sharply from the record lows seen in the first two years of the Covid-19 pandemic. Even with this large increase in volume, it is coming off a very low base, as the vast majority of borrowers have loans with interest rates well below 5%. Both conventional and government activity climbed to the fastest pace of refinancing since 2022.
Applications for a mortgage to purchase a home increased 5% for the week but were still 0.4% lower than the same week one year ago.
“It is notable that conventional purchase applications increased to a pace ahead of last year, which also drove overall purchase applications very close to year-ago levels,” Kan said. “Homebuyers are seeing improving affordability conditions, sparked by lower rates and slower home-price growth.”