Refi business picks up as mortgage rates fall

Mortgage applications increased 3.9% on a seasonally adjusted basis during the week ending July 12, due mainly to borrowers taking advantage of a decline in rates to refinance their home loans, according to data released Wednesday by the Mortgage Bankers Association (MBA). 

“Mortgage rates declined last week, as recent signs of cooling inflation and the increased likelihood of Federal Reserve rate cuts later this year pulled them lower,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement.  

On the inflation front, the latest Consumer Price Index (CPI) declined by 0.1% from May to June while rising 3% on an annualized basis, the slowest rate of growth in more than three years. In addition, Fed Chair Jerome Powell said on Monday that policymakers would not wait for inflation to reach 2% before making cuts to benchmark rates. The federal funds rate has been at a target range of 5.25% to 5.5% since July 2023.

As a result, mortgage rates are trending down. According to HousingWire’s Mortgage Rates Center, the average 30-year conforming loan rate was 7.04% on Wednesday, a decline from 7.11% a week earlier. The 15-year conforming loan rate showed an even larger pullback, falling from 6.89% to 6.71% during the week.

Refinance application volume accounted for the bulk of the increase in the MBA’s overall index as the seasonally adjusted figure rose 15% on a weekly basis and 37% on a yearly basis. In total, refinance loans accounted for 38.8% of all applications, up from 34.9% in the previous week. 

The MBA’s survey — which covers 75% of all retail residential mortgage applications in the U.S. — showed that the average contract interest rate for 30-year fixed-rate conforming loans (balances of $766,550 or less) decreased to 6.87% during the week ending July 12, compared to 7% the previous week. The average rate for jumbo loans (balances above $766,550) fell from 6.87% to 6.75%.

Adjustable-rate mortgages (ARMs) declined to 5.8% of all application activity. Federal Housing Administration (FHA) loans accounted for 13.5% of activity, up from 12.5% the previous week. U.S. Department of Veterans Affairs (VA) loans saw their share increase to 15.2% from 13.7%, while U.S. Department of Agriculture (USDA) loans receded to a share of 0.4%.

Convincing borrowers to take a new mortgage, however, was more challenging last week since purchase applications were down 3% from the prior week and declined 14% from a year ago. 

“Application activity was up 4%, driven by a 15% jump in refinances to the highest level since August 2022,” Kan said. “While FHA and VA refinance applications accounted for a significant share of the increase, these are likely recently originated loans with even higher than current offered rates.”