Americans Race to Refinance Mortgages as Rates Fall

Homeowners are jumping to refinance their home loans in the hope of finding savings on their mortgages amid falling rates that have declined from their two-decade peak a few months ago, the Mortgage Bankers Association (MBA) said on Wednesday.

For the week ending January 12, the Refinance Index shot up by 11 percent from the previous week, according to the MBA, and was 10 percent higher that the same time a year ago. Overall, mortgage applications increased again during the week by more than 10 percent.

The boost in refinancing and mortgage applications came amid a drop in mortgage rates from 8 percent in October 2022, the highest level since the turn of the century.

"Mortgage rates declined across all loan types as Treasury yields moved lower last week on incoming inflation data, which helped to support a rise in mortgage applications," Joel Kan, MBA's deputy chief economist, said in a statement shared with Newsweek. "The 30-year fixed rate decreased six basis points to 6.75 percent, the lowest rate in three weeks."

Over the last few months, the decline in rates has sparked activity in the housing market. Prospective buyers are increasingly attending open houses and tours, looking for opportunities to buy, according to real estate experts.

"Although purchase activity is lagging year-ago levels, refinance applications have improved from their recent low point and have been showing year-over-year gains, albeit at low levels," Kan said. "If rates continue to ease, MBA is cautiously optimistic that home purchases will pick up in the coming months."

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The key to a full rebound of the housing market will continue to be home prices, which remain elevated as supply remains low. The median sale price was up more than 4 percent to more than $363,000 to start the year, while the asking price also saw an increase of nearly 5 percent at $364,725, according to the real estate platform Redfin.

Part of the reason supply is low is because sellers of existing homes are reluctant to give up the low rates they secured in the past. Nearly 89 percent of American homeowners have mortgages that are below 6 percent, less than what's currently being offered by lenders, according to Redfin.

That means monthly mortgage payments will still be higher than what those homeowners are paying, discouraging them from selling their homes. While the median monthly payment of nearly $2,400 may be down $300 from when rates were at two-decade highs, that is still 7.4 percent higher than where it was a year go, Redfin points out.

"That's because both mortgage rates and home prices are higher than they were at this time last year," they said.

For prospective buyers, even as rates have fallen, the question of affordability lingers.