Weekly mortgage demand rises as interest rates fall to two-year low

Mortgage rates fell again last week, and expectations that they could fall even further caused demand for mortgage loans, especially for refinancing, to suddenly skyrocket.

The Federal Reserve is expected to make its first interest rate cut in four years on Wednesday. While mortgage rates don’t exactly follow the Fed, they are influenced by policymakers, and it’s likely they will respond to Fed Chair Jerome Powell’s comments after the decision.

“The most important finding is that lower mortgage rates are not only not remotely guaranteed by [the] “The Fed is already in the clear. They’re basically already locked in,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “The direction depends on the dot plot and Powell’s comments in the press conference. Things could go either way and the volatility could be significant.”

According to the Mortgage Bankers Association’s seasonally adjusted index, the total volume of mortgage applications rose 14.2% last week compared to the previous week. Last week’s results include an adjustment for Labor Day.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less fell to 6.15% from 6.29%, with points for loans with a 20% down payment rising to 0.56 from 0.55, including the origination fee. That’s the lowest rate since September 2022 and 116 basis points lower than the same week a year ago.

“Application activity increased significantly last week as market expectations of a Fed rate cut pulled mortgage rates lower,” said Joel Kan, an economist at the Mortgage Bankers Association.

Applications to refinance a home loan rose 24% from the previous week and were 127% higher than the same week a year ago. Most of these applicants likely purchased their homes in the last two years, when interest rates rose sharply from the record lows of the first two years of the Covid-19 pandemic. Despite this sharp increase in volume, it is coming from very low levels, as the vast majority of borrowers have loans with interest rates well below 5%. Both conventional and government activity rose to the fastest pace of refinancing since 2022.

Applications for mortgage loans to purchase a home rose 5% during the week, but were still 0.4% below the same week a year ago.

“It is notable that the number of applications to purchase a home conventionally has increased at a faster rate than last year, which has also caused the total number of applications to purchase a home to drop almost to last year’s level,” Kan said. “Homebuyers are seeing affordability conditions improve, driven by lower interest rates and slower home price growth.”