Refinance Demand Soars 14% as Rates Hit Lowest Since August

After an 8% surge in October, mortgage rates have retreated back to around 7%, igniting a revival in the refinance market. Last week, the average interest rate for 30-year fixed-rate mortgages dropped to 7.17%, the lowest since August, prompting a 14% increase in refinance applications compared to the previous week. This marks the second consecutive week of year-over-year growth, providing a positive sign after a sluggish 2022. However, despite the recent uptick, overall refinance demand remains relatively low, reflecting the substantial number of borrowers who already refinanced during the initial years of the COVID pandemic, when interest rates reached numerous record lows.

On the other hand, mortgage applications for home purchases declined by 0.3% for the week and were 17% lower than the same period last year. Prospective buyers continue to face challenges such as elevated home prices and limited housing inventory. The continued decline in mortgage rates is attributed to factors like slower inflation and financial markets anticipating a potential end to the Federal Reserve’s hiking cycle. The upcoming release of the monthly employment report is anticipated to influence whether this trend persists or sees a reversal, depending on the report’s insights into the current state of the economy.

Fed Maintains Rates, Signals Three 2024 Cuts

The Federal Reserve maintained its key interest rate, keeping it steady for the third consecutive time amid easing inflation and stable economic conditions. Policymakers voted unanimously to support the benchmark overnight borrowing rate of 5.25%–5.5%. Alongside this decision, the Federal Open Market Committee (FOMC) hinted at a potential shift by penciling in at least three rate cuts in 2024, representing quarter-percentage-point increments. This was less aggressive than market expectations but more than what officials had previously indicated.

The committee’s “dot plot” of individual members’ expectations suggested four more cuts in 2025, totaling a whole percentage point, and three additional reductions in 2026. Markets responded positively to the announcement, with the Dow Jones Industrial Average rising over 400 points. The FOMC’s approach reflects a cautious stance, suggesting that hikes may be over and emphasizing a focus on various factors for any potential policy tightening. Chair Jerome Powell highlighted the improvement in inflation, stating that it had eased over the past year without a significant increase in unemployment. The Fed’s preferred inflation gauge is expected to meet its 2% target in 2026. The committee noted a slowdown in economic activity but maintained a generally positive outlook. While officials have expressed their readiness to address inflation, they remain patient, closely monitoring the impact of previous policy moves on the economy. The decision comes as the Fed faces political considerations and potential challenges during the 2024 presidential election year.

MBA Weekly Survey (Dec. 13): Rise in Mortgage Applications

Based on the Mortgage Bankers Association’s Weekly Mortgage Applications Survey, mortgage applications saw a notable 7.4% increase in the week ending Dec. 8, 2023. The Market Composite Index, reflecting mortgage loan application volume, rose 7.4% on a seasonally adjusted basis compared to the prior week. Refinance applications surged by 19% from the previous week. In comparison, purchase applications also showed a slight uptick of 4% on a seasonally adjusted basis. Still, due to ongoing inventory challenges, they remained 18% below the volume observed in the same week last year.

Mike Fratantoni, MBA’s SVP and Chief Economist, noted the impact of declining rates on the mortgage market, emphasizing that the average 30-year fixed mortgage rate hit its lowest point since July, offering relief to borrowers. However, he highlighted that while refinance activity responded positively, the purchase market continued to struggle, trailing behind last year’s pace by 18% due to inventory constraints, even with the decrease in interest rates. The refinance share of mortgage activity rose to 39.2%, and the adjustable-rate mortgage (ARM) percentage decreased to 6.3%, reflecting shifting trends in borrower preferences. The survey also detailed changes in average contract interest rates for various mortgage types.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.