Mortgage refinance applications surge as rates drop to 6-month low

Applications to refinance home loans jumped 19 percent last week as mortgage rates fell to their lowest level since July, according to new data released by the Mortgage Bankers Association (MBA) on Wednesday.

The average 30-year fixed mortgage rate fell to 7.07 percent last week, after nearing 8 percent in late October.

“Mortgage rates dropped last week, as incoming data point to a slowing economy and support a pivot by the Federal Reserve to begin cutting rates next year,” Mike Fratantoni, MBA’s chief economist and senior vice president of research and industry technology, said in a statement.

“Borrowers who had seen rates near 8 percent earlier this fall are now seeing some lenders quote rates below 7 percent,” Fratantoni continued. “Refinance volume picked up in response to this drop in rates, with a particularly notable increase for [Federal Housing Association] and [Veterans Affairs] refinance applications.”

As the Fed has repeatedly raised interest rates over the past two years in an effort to tame sky-high inflation, mortgage rates have also ticked upward to a two-decade high.

However, with inflation easing and the economy showing signs of slowing, the central bank has held rates steady at its last two consecutive meetings and is widely expected to keep rates at a range of 5.25 to 5.5 percent at this week’s meeting.

Mortgage applications overall also increased last week, rising 7.4 percent over the week before, while applications for purchases of single-family homes fell by 1 percent from the previous week and 18 percent from the year before. 

“Purchase volume was running about 18 percent below last year’s pace, as prospective homebuyers are still challenged by a lack of inventory, even as rates have decreased,” Fratantoni noted.