Mortgage rates ticked up last week, but that didn’t stop a surge in both refinancing and home purchase activity, according to the latest data from the Mortgage Bankers Association. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, loans of $806,500 or less, rose slightly to 6.93% from 6.92%. While that’s hardly a dramatic jump, it does keep rates near the upper end of their recent range, which many would expect to put a damper on borrowing.
Instead, mortgage applications moved sharply higher. Applications to refinance existing mortgages jumped 16% for the week and are now 28% above the level seen in the same week last year. Homeowners who missed out on refinancing during previous rate dips appear to be taking advantage of any perceived opportunity, even as rates hover close to 7%.
Purchase activity, which is typically more sensitive to rate changes, also showed notable resilience. Applications for a mortgage to buy a home climbed 10% for the week, putting them 20% higher than the same week a year ago. That’s a significant turnaround from much of the past two years, when high borrowing costs and limited housing inventory kept many buyers on the sidelines.
What’s driving the uptick? For one, there’s a growing sense among buyers and homeowners that rates are unlikely to fall dramatically in the near term. With the Federal Reserve holding steady and inflation still a concern, many are recalibrating their expectations and moving forward with transactions rather than waiting for a perfect window. In addition, some seasonal factors are at play. Late spring and early summer are traditionally the busiest times for home sales, as families look to move before the new school year.
The increase in refinancing is particularly interesting. While rates remain well above the historic lows of 2021, a significant number of homeowners still have mortgages with even higher rates, especially those who purchased or refinanced before the pandemic-driven rate drops. For these borrowers, even a modest reduction in their monthly payment can add up over time, making refinancing attractive despite the current rate environment.
For lenders, this burst of activity is a welcome change after a prolonged period of sluggish demand. Many mortgage companies have faced declining volumes and tighter margins, leading to layoffs and consolidation across the industry. The recent uptick, if sustained, could provide some relief and stabilize the sector.
Investors keeping an eye on publicly traded mortgage lenders and banks may want to watch for how this trend plays out. Companies like Rocket Companies (NYSE: RKT) and Wells Fargo (NYSE: WFC), both active in the mortgage origination space, could see a boost in their mortgage-related revenue streams if the application momentum continues. Of course, the broader outlook for the housing market remains mixed, with affordability challenges and inventory shortages still posing headwinds.
Still, the latest numbers suggest that American borrowers are adapting to the new normal of higher rates, and some pent-up demand is being released. Whether this is a temporary blip or the start of a more sustained recovery in mortgage activity remains to be seen, but for now, both homeowners and prospective buyers are showing more willingness to act, even as borrowing costs edge higher.
