Erin Sykes, chief economist at Nest Seekers International, weighs in on “The Bottom Line” as high interest rates continue to hurt the housing market.
While mortgage rates remain uncomfortably high for many prospective homebuyers and sellers, recent declines in interest rates have led to a significant increase in demand for refinancing.
The Mortgage Bankers Association said Wednesday that refinance applications jumped 35% last week, when interest rates on the average 30-year and 15-year fixed-rate mortgages hit their lowest levels in more than a year, according to Freddie Mac.
A row of identical homes and gardens in Queens, New York, on April 7. (Lindsay Nicholson/UCG/Universal Images Group via Getty Images/Getty Images)
The MBA said a surge in refinancing demand was driving the overall increase in mortgage applications, which rose 15% from the previous week, compared with just 3% for home purchase applications.
According to MBA data, demand for refinancing increased 118% from a year ago.
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In particular, there has been a surge in VA loan refinancing applications, up 77% from the previous week.
“Given the bond market’s sensitivity to data, and mortgage bond prices are down about 0.625 percentage points from their Aug. 2 highs, the surge in refinance applications should only be temporary,” said Emily Overton, capital markets analyst at Veterans United Home Loan, a large lender for the Department of Veterans Affairs.
A home in Hercules, California, on August 16, 2023. (David Paul Morris/Bloomberg via Getty Images/Getty Images)
Overton noted that industry data suggests about 200,000 VA loan borrowers are estimated to be stuck with mortgage rates above 7%. The average interest rate on a 30-year fixed-rate mortgage this week is 6.49%, according to the latest data released Thursday by Freddie Mac.
A surge in refinance demand drove the overall increase in mortgage applications, which increased 15% from the previous week. By comparison, purchase applications were up just 3%.
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Holden Lewis, a mortgage expert at NerdWallet, said the surge in refinancing over the past few weeks is a direct response to the sudden drop in interest rates, rather than people trying to cash out their assets.
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““Most of the increase in refinancing is due to what’s called interest-rate/term refinancing,” Lewis told FOX Business. “These homeowners just want a lower monthly payment on their home. They’re not looking to pay off high-interest credit card debt.”
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Still, he noted, “Lots of people are refinancing their mortgages for more than they owe in order to pay off credit cards and other high-interest debt.”“
