The demand for mortgage refinancing rose 18% as interest rates saw a fifth consecutive week of decreases. Homeowners and potential homebuyers acted quickly in response to the falling rates. According to the Mortgage Bankers Association’s adjusted index, the total volume of mortgage applications, including refinancing and home purchasing loans, increased 7.4% from the previous week. 

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $726,200 or less dropped to 6.18% from 6.19%, with points dropping to 0.64 from 0.65 for loans with a 20% down payment. This marks a significant change from one year prior, when the rate was 3.83%.

Refinance demand increased by 18% from the previous week as mortgage rates reached their lowest level since early September, however, it was still 75% lower than the same week in the previous year. The share of mortgage activity for refinancing increased to 33.9% of all applications, compared to 31.2% in the previous week.

Applications for a mortgage to purchase a home increased by 3% for the week, but were still 37% lower than the same week in the previous year.

Joel Kan, an MBA economist, stated that purchase activity, which was postponed last year due to the rapid rise in rates, is gradually coming back as rates become more favorable and demand for housing remains strong, driven by supportive demographics and the continued strength in the job market.

According to Joel Kan, an MBA economist, the average loan size for a purchase application rose to $428,500, the highest it has been since May of 2022. Kan stated that this increase indicated that the current trend in increased purchase activity is geared towards larger loan sizes and less activity from first-time homebuyers, as there is a shortage in entry-level housing and affordability is a struggle in many markets.

Mortgage rates saw a significant increase at the start of the week, following the release of a strong employment report on Friday and comments made by Federal Reserve Chair Jerome Powell on Tuesday, suggesting that the central bank may continue to raise interest rates.

Powell was quoted as saying that the bank would react to the data and that if strong labor market reports or higher inflation reports were to continue, it may become necessary to raise rates more than what was previously expected.

According to a survey conducted by Mortgage News Daily, the average rate on the 30-year fixed increased by nearly half a percentage point from last Thursday to Tuesday.