Mortgage rates are hovering near their lowest averages in more than a year — and borrowers are taking advantage.
Mortgage applications climbed 17% in the week ended Aug. 9, according to data from the Mortgage Bankers Association’s Market Composite Index released Wednesday. That increase drove the index, a measure of mortgage loan application volume, to its highest level since January 2023.
The overall increase was driven in part by a 35% week-over-week jump in mortgage refinance activity. Compared to a year earlier, refinances increased 118%, the industry group said. The growth marks the strongest week for the refinance market since May 2022.
The surge in borrower activity comes as mortgage rate averages have been on a weekslong decline. As of Aug. 8, the 30-year, fixed-rate mortgage averaged 6.47%, the lowest average since May 2023, according to mortgage giant Freddie Mac. That decline was enough to lure prospective homebuyers and borrowers back into the mortgage market, according to economists.
“Mortgages decreased for the second consecutive week, and combined with the previous week’s rate moves, spurred another strong week for application activity as borrowers with higher rates took the opportunity to refinance,” Joel Kan, MBA’s vice president and chief deputy economist, said in a statement Wednesday.
“The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move,” Freddie Mac’s Chief Economist, Sam Khater, said in a statement last week.
But it’s not just mortgage holders who took advantage of easing rates by refinancing: More borrowers applied for a purchase loan in the week ended Aug. 9, too, according to the MBA. The gains were spread across various loan types “indicating that prospective buyers are slowly reentering the market,” Kan said.
Industry professionals expect the trend in rates and borrower activity will continue, especially as inflation data released Wednesday provided another indication that the Federal Reserve will probably cut interest rates in September, a move that would have direct effects on the mortgage market.
Once the Fed moves to cut rates, there could be an even greater increase in consumer demand, according to Robert Dietz, chief economist at the National Association of Home Builders, said in a blog post.
“For frustrated, prospective home buyers who face the most challenging housing affordability conditions in more than a decade, this policy change cannot come soon enough — especially for younger buyers,” he said.