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Demands for Mortgage Refinancing Unexpectedly Climbs Amid High Interest Rates
Last week, despite rising interest rates, there was an unusually large increase in mortgage refinancing applications.
Overall mortgage applications increased last week, according to the Mortgage Bankers Association (MBA). Applications for purchase mortgages increased by 2.3 percent, and refinancings increased by 13.2 percent.
The sudden increase in refinancing activity is extremely uncommon given that interest rates climbed last week. With conforming loan balances currently set at $726,200, the average contract interest rate for 30-year fixed-rate mortgages increased from 7.27 percent to 7.31 percent. When borrowing rates decrease, refinancings typically increase.
Increased refinancings may indicate that some households are under financial pressure as a result of ongoing inflation and are using their home equity to fund expenditures. Some homeowners might be concerned that rates will continue to rise or stay the same.
Investors in the bond market have been shifting away from the belief that the Fed will decrease interest rates numerous more times in the near future. Federal rates futures showed more than a 30% likelihood that the Fed's benchmark would be one full percentage point lower than it is right now a month ago. Market prices on Wednesday only gave a 10% possibility of such a drop in the overnight rate. The market currently predicts that the Fed funds rate will be approximately 5% in September 2024.
Although the rise last week, the number of mortgage applications is still significantly lower than it was a year ago.
“Mortgage applications increased last week, despite the 30-year fixed mortgage rate edging back up to 7.31 percent – its highest level in four weeks,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications increased for conventional and FHA loans over the week but remained 26 percent lower than the same week a year ago, as homebuyers continue to face higher rates and limited for-sale inventory, which have made purchase conditions more challenging. Refinance applications also increased last week but are still almost 30 percent lower than the same week last year.”
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