Homeowners Rush To Refinance As Mortgage Rates Drop

With mortgage rates falling to their lowest levels in more than a year, homeowners jumped at the chance to refinance, leading to a surge in demand for mortgage loans last week.

Refinancing activity was higher by 16% from the week prior and comprised a greater share of total mortgage applications, which increased 6.9% for the week ending August 2, data from the Mortgage Bankers Association (MBA) showed Wednesday.

The jump in demand was spurred by a drop in the 30-year, fixed-rate mortgage to 6.55%, sending home borrowing costs to their lowest levels since May 2023. 

“As a result of lower rates, refinance applications increased across all loan types, particularly for VA loans, and were almost 60 percent higher than it was at this time last year and were at its highest level in two years,” said Joel Kan, MBA vice president and deputy chief economist.

Purchase Activity Rises Only Slightly

However, purchase activity moved higher by only 1% last week versus the previous week, as potential homebuyers wait for more homes to come one the market and prices to become more affordable.

“Despite the downward movement in rates, purchase activity only saw small gains, with an increase in conventional purchase applications offset by decreases in government purchase applications,” Kan said. “For-sale inventory is beginning to increase gradually in some parts of the country and homebuyers might be biding their time to enter the market given the prospect of lower rates.”

The Federal Reserve for the past year has kept its benchmark lending rate, which influences rates on mortgages and all sorts of other loans, at its highest level since 2001 in an effort to combat inflation. With inflation falling and concerns about the labor market rising, Fed chair Jerome Powell said last week that the central bank could start cutting the influential rate as soon as September.