Mortgage refinance demand is 94% higher than a year ago, as interest rates fall again

Mortgage demand is now largely focused on refinancing, as interest rates have declined for the fifth consecutive week.

Total mortgage application volume increased by just 1.6% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) dropped slightly to 6.43% from 6.44%, though points rose from 0.54 to 0.56 (including the origination fee) for loans with a 20% down payment. Despite the slight drop, rates were still 78 basis points higher than during the same week last year.

Applications to refinance home loans fell by 0.3% for the week, but were still 94% higher than a year ago. While that increase might seem significant, it's coming from a very low base. Refinancing remains a bright spot in an industry that has been hit hard by high interest rates and weak homebuying activity.

"Refinance applications were slightly down but continued to show strong year-over-year growth, as borrowers with higher rates have been refinancing to lower their monthly payments," said Joel Kan, an economist at the MBA. "In August, the refinance share of applications averaged nearly 46%, the highest monthly average since March 2022."

Meanwhile, applications for home purchase mortgages rose by 3% over the week but remain 4% lower than during the same week last year. Home sales have slowed significantly this summer, as buyers struggle with high home prices. The recent dip in interest rates hasn't been enough to motivate most buyers.

The small increase in demand was driven by government loans, such as FHA and VA loans, which offer lower or no down payment options and are popular with lower-income buyers.

Mortgage rates remained relatively stable on Tuesday, as markets await the release of key employment and economic data later this week.