Mortgage refinance demand jumps 18% as interest rates drop

Mortgage rates continued to fall last week, and both current homeowners and potential homebuyers reacted swiftly.

Total mortgage application volume, including refinances and loans to purchase a home, jumped 7.4% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.18% from 6.19%, with points falling to 0.64 from 0.65 (including the origination fee) for loans with a 20% down payment. That rate was 3.83% the same week one year ago.

With rates at the lowest level since early September, refinance demand surged 18% week to week but was still 75% lower than the same week one year ago. The refinance share of mortgage activity increased to 33.9% of total applications from 31.2% the previous week.

Mortgage applications to purchase a home rose 3% for the week and were 37% lower than the same week one year ago.

“Purchase activity that was put on hold last year due to the quick run-up in rates is gradually coming back as rates ease and housing demand remains strong, driven by supportive demographics and the ongoing strength in the job market,” said Joel Kan, an MBA economist.

Kan added that the average loan size on a purchase application increased to $428,500 — the largest average since May 2022.

“This increase is a sign that the recent upward trend in purchase activity remains skewed toward larger loan sizes and less first-time homebuyer activity, as entry level housing remains undersupplied, and buyers struggle with affordability in many markets,” said Kan.

Mortgage rates bounced back dramatically to start this week, after an unexpectedly strong employment report Friday and commentary Tuesday from Federal Reserve Chair Jerome Powell that the central bank could continue to raise interest rates.

“The reality is we’re going to react to the data,” Powell said. “So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have do more and raise rates more than is priced in.”

The average rate on the 30-year fixed jumped nearly a half a percentage point from last Thursday to Tuesday, according to a separate survey by Mortgage News Daily.