Mortgage refinance demand surged last week as U.S. interest rates fell to their lowest level since late 2022, sparking a rush among homeowners to lock in savings ahead of an anticipated Federal Reserve rate cut.
Applications to refinance home loans jumped 58% from the previous week and were 70% higher than the same week a year ago, according to the Mortgage Bankers Association (MBA). The refinance share of mortgage activity spiked to 59.8% of all applications, up sharply from 48.8% the prior week.
"The downward rate movement spurred the strongest week of borrower demand since 2022, with both purchase and refinance applications moving higher," said Joel Kan, MBA deputy chief economist.
The surge coincided with a 15-basis-point drop in the average 30-year fixed mortgage rate to around 6.35%, the largest weekly decline in a year, according to Freddie Mac. Mortgage News Daily reported that rates slid further early this week to 6.13%, the lowest since December 2022.
Refinance demand was particularly strong among homeowners with larger loans, with the average refinance loan size hitting its highest level in the 35-year history of MBA's survey. Adjustable-rate mortgages (ARMs) also saw heightened interest, making up 12.9% of applications - the highest share since 2008.
"Notably, ARMs typically have initial fixed terms of five, seven, or ten years, so those loans do not pose the risk of early payment shock that pre-2008 ARMs did," said Mike Fratantoni, MBA's chief economist. "Borrowers who do opt for an ARM are seeing rates about 75 basis points lower than for 30-year fixed rate loans."
Purchase activity rose more modestly, with applications up 3% from the prior week but still 20% higher than the same period in 2023. Total mortgage applications increased 9.2% in the week ending Sept. 5.
The drop in rates follows a broader decline in Treasury yields as investors price in looser monetary policy. The 10-year U.S. Treasury yield has eased to about 4.02% from a peak near 4.8% earlier this year, driving mortgage rates lower.
Economists say the rate moves could help thaw the housing market, which has been stalled by high borrowing costs for nearly two years. The National Association of Home Builders said this week the market could be "approaching a turning point" as rates retreat. Bank of America expects mortgage rates to decline further to around 6.25% by year-end if the Fed resumes its easing cycle.
