Lower borrowing costs appear to be giving the mortgage market a second wind before the end of the year.
Applications for mortgage refinances soared in the week ended Dec. 5, according to data released on Wednesday by the Mortgage Bankers Association. In all, the organization's measure showed a 14% increase in refinance activity from the previous week and an 88% spike compared to the same week a year earlier.
Those gains were driven by an 8% increase in conventional refinance applications, as the 30-year and 15-year fixed-rate mortgages both declined. As of Thursday, the 30-year, fixed-rate loan averaged 6.19% and the 15-year, fixed-rate loan averaged 5.44%, according to data from mortgage giant Freddie Mac.
Moreover, data from the MBA showed that borrowing costs for government-backed mortgages, which are distributed by the Federal Housing Administration, had also fallen — reaching their lowest level since September 2024. That led to a 24% increase in refinances of FHA loans, a common choice for first-time homebuyers.
Overall, the association's mortgage application index, which measures both refinances and purchases, increased 4.8% on a weekly basis and 49% annually.
Applications for purchase loans remained sluggish compared to the previous week. However, the big picture presents a more optimistic look and suggests that borrowers are still prioritizing affordability, especially when it comes to their down payment, according to Joel Kan, vice president and deputy chief economist at the MBA.
"Purchase applications continued to run ahead of 2024’s pace as broader housing inventory and affordability conditions improve gradually," he said in a statement.
Indeed, while housing economists are forecasting another year of muted home sales in 2025, the next year is expected to bring more activity as home price growth continues to slow and inventory levels increase.
Last month, for example, National Association of Realtors Chief Economist Lawrence Yun said he expected a 14% increase in existing home sales and a 5% increase in new home sales in 2026. At the same time, he foresees the average 30-year, fixed-rate mortgage decreasing from 6.7% to 6%.
"As we go into next year, mortgage rates will be even a little bit better,” he said. “I definitely am using the adjective ‘little bit better.’ It’s not going to be a big decline, but you will still see some modest decline that will help improve some affordability.”