Weekly mortgage refinance demand surges as interest rates drop to lowest point in 7 weeks

Mortgage interest rates fell for the third straight week last week, sparking increased demand for refinances. Homebuyers, however, were not impressed.

Total mortgage application volume rose 1.9% compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less decreased to 7.01% from 7.08%, with points decreasing to 0.60 from 0.63, including the origination fee, for loans with a 20% down payment.

Applications to refinance a home loan rose 7% for the week and were 21% higher than the same week one year ago. Rates last week were just 32 basis points higher than they were a year ago, and that gap has been shrinking. The vast majority of today’s borrowers still have rates significantly lower than what is offered today, so even with the weekly gain, demand is still at a very low level.

“Rates coming down from recent highs spurred some borrowers to act, with increases across both conventional and government refinance applications,” said Joel Kan, MBA’s vice president and deputy chief economist. “VA refinances had a double-digit increase for the third consecutive week, although the current level of refinancing is still well below its historical average.”

Applications for a mortgage to purchase a home fell 1% for the week and were 11% lower than the same week one year ago. While higher mortgage rates certainly hurt affordability, today’s buyers are still facing very low supply and stiff competition, which fuels bidding wars.

Mortgage rates have not moved much so far this week, and there is not much expectation of a reaction to the release of the minutes from the Federal Reserve on Wednesday.

“In this environment of high transparency and frequent speeches from Fed members, it’s hard to imagine that the minutes will cause any drama,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “This is a bit of a paradigm shift for some market watchers who have seen the minutes send rates quickly higher or lower in the past.”