Refi Demand Falls 40% Behind Last Year’s Pace

On the heels of the first mortgage rate drop in nearly a month, the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 9 found overall mortgage application volume rose 7.2% week-over-week.

The dip in rates breathed some life into the refinance market, as the MBA’s Refinance Index increased 6% over the previous week, yet was still 41% lower than the same week one year ago. The seasonally adjusted Purchase Index increased 8% from one week earlier. The unadjusted Purchase Index increased 17% compared with the previous week, and was 27% lower than the same week one year ago.

“Mortgage rates declined for the second straight week, with the 30-year fixed rate decreasing to 6.77%. Mortgage applications were up over the week, but remained well below levels from a year ago,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “Rates that are still more than a percentage point higher than a year ago, and low for-sale inventory continue to constrain homebuying activity in many markets. The average loan size on a purchase loan decreased for the third straight week, as we continue to see more first-time homebuyer activity in the purchase market.”

By loan type, the MBA reports that the FHA share of total applications decreased slightly to 13% from 13.2% the week prior. The VA share of total applications increased slightly to 12.6%, up from 12.5% the week prior. The USDA share of total applications increased to 0.5% from 0.4% the week prior.

The refinance share of mortgage activity remained unchanged at 27.3% of total applications from the previous week, and the adjustable-rate mortgage (ARM) share of activity decreased to just 6.5% of total applications.

“Refinance applications accounted for less than a third of all applications and remained more than 40% behind last year’s pace,” added Kan. “Elevated rates have reduced the benefit of a rate/term refinance for many borrowers and continue to discourage cash-out refinances as borrowers are unwilling to give up their lower rates.”

The current rate environment is still keeping refi-seekers away from the market, as Redfin reports that more than nine of every 10 (91.8%) of homeowners nationwide with mortgages currently an interest rate below the 6%-mark, down just slightly from the record high of 92.9% hit in mid-2022. Redfin found that more than 92% of U.S. homeowners have mortgage rates below the current weekly average of 6.71%, the highest level in more than two decades.

The result of all this … more U.S. homeowners staying in place and holding onto their homes, contributing to the shortage in U.S. housing inventory.

Zillow reports that the flow of new home listings for sale was down 23% year-over-year in May—a more moderate drop than in April 2023, but nearly equal to that of March.

“High mortgage rates are a double whammy because they’re discouraging both buyers and sellers–and they’re discouraging sellers so much that even the buyers who are out there are having trouble finding a place to buy,” said Redfin Deputy Chief Economist Taylor Marr. “The lock-in effect is unlikely to go away in the near future. Mortgage rates probably won’t drop below 6% before the end of the year, and most homeowners wouldn’t be motivated to sell unless rates dropped further. Some of them simply don’t want to take on a 6%-plus mortgage rate and some can’t afford to.”