Mortgage Rates Send Americans Scrambling to Refinance Loans

Mortgage rates have fallen to their lowest level since August, lender Freddie Mac said on Thursday, sparking a refinancing of loans, suggesting homeowners were quick to jump at opportunities to save on their mortgage payments.

The 30-year fixed rate mortgage fell to an average of about 7 percent for the week, a drop of nearly one percent from a little over a month ago.

"The 30-year fixed-rate mortgage averaged near 7 percent this week, down from nearly 7.80 percent just six weeks ago," said Sam Khater, Freddie Mac's chief economist, said in a statement. The difference in rate could save the average homeowner more than a hundred dollars a month.

The fall in rates fueled a mortgage loan refinancing frenzy, the Mortgage Bankers Association (MBA) said. Its Refinance Index jumped by 14 percent from the previous week and was 10 percent higher than the same week one year ago, lenders said.

"Refinance applications saw the strongest week in two months, increasing on a year-over-year basis for the second consecutive week for the first time since late 2021," Joel Kan, MBA's deputy chief economist, said in a statement on Wednesday.

The drop in rates was due in part to the markets anticipating that, with inflation improving, the Federal Reserve was done raising rates. The decline in rates has contributed to a rise in applications for new mortgages. Mortgage applications shot up nearly 3 percent for the week ending December 1, from the previous week, MBA said.

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"Mortgage applications increased for the fifth consecutive week, a strong indication that borrower demand is rising as a result of the recent decline in mortgage rates," Bob Broeksmit, MBA president and CEO, said in a statement shared with Newsweek. "The market outlook continues to improve as 2023 closes, with mortgage rates now down almost a full percentage point from their recent highs a few months ago."

The Fed's raising of rates starting in March of 2022 to its current range of 5.25 percent and 5.5 percent has contributed to the rise of borrowing costs for home buyers. Mortgage rates skyrocketed to two-decade highs and at one point hit 8 percent in October the furthest they have been since the turn of the century.

With data showing that inflation is cooling, analysts expect policymakers to hold rates at their current level for the third time in a row at their gathering next week.

"While Fed officials are not ready to admit it publicly, the better-than-expected news on inflation over recent months has taken the prospect of additional rate hikes off the table," Michael Pearce, a lead U.S. Economist at Oxford Economics said in a note shared with Newsweek. "We think the Fed is now on a prolonged hold."

With the Fed expected to pause its rate hikes, housing economists forecast mortgage rates to fall to the mid-6 percent levels by the end of next year, a development that will spur more home sales and a fall in prices.

But lenders struck a note of cautious optimism about the market, especially in the refinance segment of the mortgage business

"The overall level of refinance applications is still very low, but recent increases could signal that 2023 was the low point in this cycle for refinance activity, consistent with our originations forecast," MBA's Kan said. "Purchase applications remained 17 percent lower than a year ago, held back by low inventory and still-challenging affordability conditions."