The higher mortgage interest rates are slowing down refinancing activities
Refinancing volume is a fraction of what it was three years ago, when mortgage rates plummeted to historic lows, but this year borrowers have returned in greater numbers.
Recent data by KernLogic shows that $347 billion in refinancings took place in the first ten months of 2024. That’s a 27% increase from the total of $273 billion for the same period last year, which was a 22-year low. But it’s also a far cry from the $2.2 trillion spent in the first ten months of 2021, when mortgage rates were still around 3%.
CoreLogic analyzed data from the past five years and found an “inverse relationship between mortgage interest rates and refinancing activity.” The company noted that a drop in interest rates of about 120 basis points during the 12 months ending September 2024 pushed refinancing applications to the highest level in two years. Conversely, when mortgage rates rose just a month later, refi activity decreased.
HousingWire‘s Mortgage Rates Center shows that the average rate on 30-year conforming loans rose about 20 basis points from a year ago, although Monday’s 7.05% figure is down significantly from the peak of 7.58% early May in 2024.
The 15-year conforming loan rate has shown even more volatility. Interest rates started the year at 6.05%, rose past 7% in early July and plummeted to a low of almost 5.5% at the end of September. But even with the Federal Reserve After cutting rates three times since September, the 15-year yield jumped to a peak of 7.18% in early December and stood at 7.02% on Monday.
Intercontinental exchange (ICE) reported earlier this month that borrowers were taking advantage of the short refinancing window that opened in the fall. The data showed that the average refi borrower had just 15 months of prior mortgage in September and October – the shortest period ICE has tracked in the past 20 years. The average rate-and-term refi borrower during that time reduced their monthly payment by more than $300.
Another significant drop in mortgage rates could trigger a similar mini-refi boom. But CoreLogic’s data illustrates the limited potential for this group of borrowers, as about 80% of current U.S. mortgage holders have interest rates below 5%.
Conversely, about 12% of borrowers have interest rates above 6%, and many of these mortgages have been taken out since early 2023. This group could be encouraged to take out a new loan if interest rates fall again by a full percentage point or more.
Many forecasts say mortgage rates will fall in 2025, even though market headwinds appear to be fierce this year. But there is the potential that refinancing activity could expand if conditions are favorable. Fannie Mae recently called for refi volume to jump to $529 billion in 2025 – an increase of 47% from the projected total of $360 billion in 2024.
