Refinance activity last week hit its highest level since August 2022, when mortgage rates were closer to 5%. But it’s far too early to celebrate.
Refinance activity received a major boost last week as mortgage rates declined on the back of expectations that the Federal Reserve will cut interest rates and a possible recession looms. The dollar volume of refinance applications increased 32.8% for the week ending Aug. 9 from the previous week, according to Fannie Mae’s Refinance Application-Level Index (RALI).
RALI dollar volume rose 94.4% compared to the same period in 2023 when the average 30-year fixed mortgage rate surpassed 7%. RALI count increased 22.8% from the previous week and is up 58.2% compared to the same week last year.
Mortgage rates began to take a sharp decline earlier this month led by an unemployment spike, boosting expectations for the Fed’s interest rate cut in its upcoming September meeting. Rates for many borrowers of government loans between Thursday, August 1 and Tuesday, August 6 were in the high 5s and low 6s, while conventional mortgages were reliably in the mid-6% range, loan originators told HousingWire. However, rates shot back up later in the week, giving back a lot of the gains achieved.
The 30-year conforming mortgage rate averaged 6.68% on Tuesday, dropping from 6.9% a week ago, HousingWire‘s Mortgage Rates Center showed. Mortgage News Daily, which prices mortgages for best-case scenario borrowers, had conventional mortgage rates at 6.55% on Tuesday.
While mortgage rates generally have been cooling down over the past few months after peaking in May, they would need to drop significantly to trigger a truly meaningful uptick in refinance activity.
“While refi activity is up significantly over the last couple weeks, most borrowers would need mortgage rates to move much lower before they’re incentivized to refinance,” said Mark Palim, deputy chief economist at Fannie Mae.
Compared to the third quarter of 2020 when the mortgage market faced a refi boom, the dollar volume of refinance applications was still down 80.1%, according to Fannie Mae data. About 88% of Fannie Mae single-family mortgage borrowers had a note rate less than 6% and about 81% had a rate below 5%.