U.S. mortgage rates fall again, triggering a surge in refinancing demand

According to the Smart Finance APP, last week, mortgage rates in the United States fell again, and due to market expectations of further rate cuts, there was a sudden surge in mortgage demand, especially for refinancing.

The Federal Reserve is expected to announce its first rate cut in four years this Wednesday. Although mortgage rates do not directly follow the Fed's actions, they are still influenced by policies. Fed Chairman Powell's comments after the decision may affect mortgage rates.

Matthew Graham, Chief Operating Officer of Mortgage News Daily, pointed out, "The most important conclusion is that the decline in mortgage rates is not directly guaranteed by the Fed's rate cut, as the market has already anticipated this change. The future trend depends on the Fed's dot plot and Powell's remarks at the press conference, and the market may move in either direction with significant volatility."

According to the Mortgage Bankers Association (MBA) seasonally adjusted index, total mortgage applications increased by 14.2% last week compared to the previous week. The results from last week have been adjusted due to the inclusion of the Labor Day holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less decreased from 6.29% to 6.15%, while loan fees increased slightly. These loans typically require a 20% down payment. This is the lowest level since September 2022, down 116 basis points from the same period last year.

MBA economist Joel Kan stated, "Last week's application activity significantly increased as market expectations of a Fed rate cut lowered mortgage rates."

Refinance applications surged by 24% compared to the previous week and were 127% higher than the same period last year. Most applicants may have purchased homes in the past two years when mortgage rates rose rapidly from historic lows at the beginning of the COVID-19 pandemic. Despite the significant increase in applications, the base is still low as most borrowers have rates below 5%. Both conventional and government-backed loans saw the fastest pace of refinance activity since 2022.

The number of mortgage applications for home purchases increased by 5% this week but was still 0.4% lower than the same period last year. Kan noted, "It is worth noting that applications for conventional home purchases have surpassed last year's levels, bringing overall home purchase applications close to last year's levels. Buyers are seeing improved affordability as mortgage rates decline and home price growth slows down."