By Axios | Created at 2024-09-26 17:11:22 | Updated at 2024-09-30 07:35:36
3 days ago
Homeowners who took out mortgages at the height of the Federal Reserve's rate-hiking campaign are rushing to shrink their monthly payments.
Why it matters: This is one intended effect of easing monetary policy — and the housing sector is a key transmission mechanism. The mini refinance boom puts more cash in consumers' pockets to spend elsewhere.
What they're saying: "Folks who are up for a refinance are paying close attention — they are ready to jump," Chen Zhao, head of economic research at Redfin, tells Axios.
- "The housing market is at a bit of a turning point, but affordability is still really bad," Zhao adds.
- Moreover, millions of households with pre-2022 mortgages continue to enjoy rates well below those now, which means less refinance activity than in earlier periods of falling rates.
By the numbers: Mortgage refinance applications spiked 20% last week, following a 24% surge the previous week, according to the Mortgage Bankers Association.
- The group's index that tracks refinances rose to the highest level in two years, though the "level of refinance activity is still modest compared to prior refi waves," MBA deputy chief economist Joel Kan said in a release.
- Refinances made up the largest share of mortgage activity — about 56% — since the Fed signaled it would kick off a rate-hiking cycle in 2022. That's partially a result of muted buying activity.
- Refinance volumes remained below levels seen for large stretches of the 2010s and much of the 2020-2021 period, however.
The big picture: The rate for a 30-year mortgage is about 6% — more than a full point lower than the most recent peak in May, according to Freddie Mac — and well below last fall when rates approached 8%.
- It makes sense, then, that homeowners who bought in recent years would take advantage of the lower rates that dropped as financial markets priced in the prospect of Fed rate cuts.
- But that pool of recent buyers is small, limiting the scenarios in which refinancing would make sense if rates don't fall much further. Most homeowners — over 76%, according to Redfin — are sitting on interest rates below 5%.
What to watch: It's unclear how much rates need to fall to loosen the "lock-in" effect and spur more selling activity.
- "We have a ways to go before we can say there is normalization in terms of housing demand and supply," says Selma Hepp, chief economist at CoreLogic. "If you get buyers back out but not sellers, you'll see pressure on home prices build again."
