Mortgage Refinance Demand Drops 15% After Recent Surge: Key Factors Behind the Decline

Mortgage rates declined for the third consecutive week, but the surge in refinancing applications appears to have moderated. According to the Mortgage Bankers Association (MBA), applications to refinance home loans fell by 15% from the previous week, though they remain 90% higher compared to the same week last year. This increase in volume reflects a 23% rise in demand over the past month, coinciding with a decrease in mortgage rates.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (up to $766,550) dropped to 6.50% from 6.54%, with points increasing to 0.60 from 0.57, including the origination fee for loans with a 20% down payment. This marks a 32-basis-point reduction in the past four weeks and is 81 basis points lower than a year ago.

Joel Kan, an economist at the MBA, noted that “both mortgage rates and mortgage applications have stabilized following recent financial market volatility, which had led to a swift decline in rates.” However, Kan added that despite the drop, rates remain high compared to the sub-5% levels seen by many borrowers during the first two years of the COVID-19 pandemic.

Applications for new home purchases also fell by 5% for the week and are 8% lower than the same week last year, reaching their lowest level since February. The decrease in purchase applications reflects ongoing affordability challenges, despite the recent drop in rates. Homebuyers continue to face rising home prices and limited inventory, although supply is slowly increasing.

Matthew Graham, Chief Operating Officer at Mortgage News Daily, observed that while rates have reached their lowest point in over two weeks, the market remains relatively stagnant. “There was significant rate volatility earlier this month, but we are currently in a slow, sideways movement as we await more definitive trends,” Graham said.