Homeowners refinance in droves as rates fall, but buying slump persists

Tumbling interest rates are pushing homeowners to call their lenders. But potential buyers are still sitting on their hands.

With typical mortgage rates hovering around 6.5 percent, the lowest they have been in a while, refinance applications increased by 35 percent from the previous week and were up 118 percent from a year ago, according to a report by the Mortgage Bankers Association. 

Applications for mortgages to purchase homes, however, were up just 3 percent from the week before on a seasonally adjusted basis — and were down 8 percent year-over-year. Potential buyers may be waiting for mortgage rates to fall further, for more inventory to hit the market and for home prices to come down from record highs.

Refinance requests accounted for 49 percent of total mortgage applications, up from 42 percent the previous week. Adjustable-rate mortgage requests increased to 7.3 percent of applications.

The average rate last week for conventional, 30-year mortgages was essentially unchanged at 6.54 percent, and also for 30-year jumbo loans (more than $766,550) at 6.78 percent.

The average rate on 15-year, fixed-rate mortgages decreased for the second consecutive week, to 5.96 percent from 6.03 percent. Rates are lower for 15-year mortgages because they offer less risk for government-sponsored entities and investors who buy those loans.

“Overall applications increased almost 17 percent to the highest level since January 2023, driven by a 35 percent increase in refinance applications,” said Joel Kan, MBA’s deputy chief economist, suggesting that prospective homebuyers are reentering the market slowly.

Rates hikes by the Fed beginning in March 2022 have slowed the housing market to a crawl. For-sale listings remain low because many homeowners are locked into low-rate mortgages and don’t want to give them up to buy another home.

But optimism endures in the home-selling industry, especially with the Federal Reserve expected to start lowering the Federal Funds Rate next month.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA remained unchanged last week at 6.49 percent.

The MBA data is based on surveys of over 75 percent of all U.S. retail residential mortgage applications. Respondents are mortgage bankers, commercial banks and thrifts.

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