Refi Mortgage Demand Surges 13.2% Despite High Rates

Applications for refinancing mortgages unexpectedly surged last week despite rising interest rates.

The Mortgage Bankers Association (MBA) said that overall mortgage applications rose 5.4 percent last week. Purchase mortgage applications rose 2.3 percent and refinancings jumped 13.2 percent.

The burst of activity for refinancing is highly unusual because interest rates rose last week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances—currently capped at $726,200—climbed to 7.31 percent from 7.27 percent. Refinancings tend to rise when interest rates fall.

The rise in refinancings could signal that some households are feeling financially strained by persistent inflation and turning to their home equity to finance spending. Some homeowners may also be worried that rates will keep climbing or stay at current levels.

Bond market investors have been moving away from the view that the Fed will cut interest rates several times next yet. A month ago, the federal funds futures market implied more than a thirty percent chance that the Fed’s benchmark would be a full percentage point lower than it is now. On Wednesday, market prices indicated just a 10 percent chance of the overnight rate falling so low. The market now implies the Fed funds rate will be around five percent in September of 2024.

Despite the increase last week, mortgage applications are far below where they were 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.”