On June 1, 2024, a sales sign appears in front of a home in Patchigue, New York.
Steve Pfost | Newsday | Getty Images
Financial market volatility caused a sharp drop in mortgage rates last week, resulting in a massive surge in mortgage demand.
According to the Mortgage Bankers Association’s Seasonal Adjustment Index, the total mortgage application volume jumped to its highest level since September 2024 compared to the previous week.
The average contract interest rate for a 30-year fixed-rate mortgage with conforming loan balances fell from 6.70% to 6.61%, below $806,500, with points increasing to 0.63, including the origination fee for a 20% down payment loan. The rate is 40 basis points lower than the same week a year ago.
The weekly drops weren’t that big, but it was the lowest rate since last October. That headline may have been spurred to move quickly to current homeowners at a higher rate. Mortgage refinance applications increased 35% from the previous week, 93% higher than the same week a year ago. Part of these large percentage increases are simply that the volume is so low that every movement is large.
Much of the demand came from borrowers who received larger loans. Because they can make greater profits from refinancing to a lower fee. The average refinance loan size was the second highest in the survey at $399,600.
Mortgage applications to buy homes increased 9% in a week, 24% higher than the same week a year ago. Since January 2024, purchase demand has been at the highest level.
Home buyers still face higher prices despite the larger listings in the market. As such, the share of adjustable mortgage applications also rose to 8.6% of total applications last week, up from 5.4% the previous week. The average contract rate for the 5/1 arm dropped from 6.04% to 5.93% for 20% down payment loans, reaching the emotionally significant 5% range.
However, increasing demand for mortgages can be short-lived. This is because mortgage rates have risen to start this week. Another survey from Mortgage News Daily saw a rise of 25 basis points on Monday and Tuesday, eliminating last week’s declines and more.
“Additional tariff updates can certainly cause volatility, but they may not be on the scale we’ve seen over the past few days,” said Matthew Graham, chief operating officer of Mortgage News. “The safest bet is to focus on this week’s inflation data, as both Thursday’s CPI and Friday’s PPI have a strong track record of impacting rate momentum.”
