The U.S. mortgage rate has dropped to its lowest level in over a year, with refinancing demand soaring by 16% in a single week
Due to the dovish comments from the Federal Reserve and a soft employment report, the average rate for 30-year fixed-rate mortgages in the United States has dropped from 6.82% to 6.55%. The decrease in mortgage rates has led to an increase in applications, especially for mortgage refinancing applications which are most sensitive to weekly rate changes, jumping 16% last week and significantly increasing by 59% compared to the same period last year. However, the volume of purchase mortgage applications only saw a slight increase of 1% last week, and a decrease of 11% compared to the same period last year, possibly due to homebuyers waiting for lower rates and maintaining a cautious attitude towards entering the housing market
Last week, mortgage rates in the United States dropped to the lowest level since May 2023, leading to a significant increase in demand for mortgages from both homebuyers and existing homeowners.
Data from the Mortgage Bankers Association (MBA) in the United States shows that total mortgage applications last week increased by 6.9% compared to the previous week. This is the highest level since January this year.
Specifically, for 30-year fixed-rate mortgages with loan amounts of $766,550 or less, the average contract rate decreased from 6.82% to 6.55%. For loans with a 20% down payment, related costs (including loan origination fees) decreased from 0.62 to 0.58.
Regarding the reasons for the rate decrease, Joel Kan, Vice President and Associate Chief Economist of the Mortgage Bankers Association, explained in a press release:
"Due to dovish remarks from the Federal Reserve and a soft employment report, market concerns about economic slowdown intensified, leading to a comprehensive decline in mortgage rates last week."
Refinance applications, which are most sensitive to weekly rate changes (i.e., borrowing new loans to repay old ones), increased by 16% last week, 59% higher than the same period last year. Although the percentage increase is significant, the base is still small. Most borrowers have rates below 5%, and currently, fewer than one million borrowers can save at least 75 basis points (0.75%) through refinancing.
It is worth noting that last week, purchase mortgage applications only increased by 1%, but were 11% lower than the same period last year. Kan added:
"Despite the rate decrease, homebuying activity only saw a slight increase, with traditional purchase mortgage applications rising while government purchase mortgage applications decreased. In some areas of the United States, housing inventory for sale has begun to gradually increase, and buyers may be waiting for lower rates before entering the market."
Due to the impact of Monday's stock market plunge, mortgage rates further decreased at the beginning of this week. However, on Tuesday, influenced by some more positive economic data, mortgage rates rose significantly again. In response to this, Matthew Graham, Chief Operating Officer of Mortgage News Daily, wrote:
"This often happens when the bond market forces rates to extreme levels quickly. For example, several of the largest daily drops in mortgage rates have followed long-term highs."