Refinances Drive Application Surge As Rates Hit 5-Month Low

Refinance applications drove a spike in mortgage applications last week as rates slipped to nearly 7%.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – saw a 7.4% boost, up from the week prior’s 2.8% increase.

Adjusted purchase applications jumped by 4%, while the unadjusted index fell 1% from the week before and was 18% lower YOY.

The data highlights borrowers’ rate sensitivity, as the 30-year fixed rate slipped to 7.07%, its lowest point since July.

A recent round of positive disinflation data put downward pressure on rates. Analysts feel more optimistic about the possibility of Federal monetary policy changes in 2024.

“Borrowers who had seen rates near 8% earlier this fall are now seeing some lenders quote rates below 7%. Refinance volume picked up in response to this drop in rates, with a particularly notable increase for FHA and VA refinance applications,” said Mike Fratantoni, MBA’s SVP and Chief Economist.

Refis were up 19% from the week prior and 27% YOY. They accounted for 39.2% of total applications, inching closer to their past-decade average of 58%.

The FHA share of total applications rose to 16.1% from 15%, with an average interest rate of 6.84%.

The VA’s share increased to 14.2% from 12.8%, while the USDA’s share fell from 0.5% to 0.4%. ARMs fell to 6.3% of total applications, coming down from a brief high while rates neared 8%.

Purchase activity remained constrained, however, as the broader issues of the market have yet to come to heel.

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

Inventory improved in November but new listings remain 14% below pre-pandemic norms.

More homes for sale may be incentivizing sellers to slash prices. Typical home values slipped 0.4% from October.