Declining mortgage rates got some would-be homebuyers off the fence last week, but sparked an even bigger surge in refinancing, the Mortgage Bankers Association reported Wednesday.
The MBA’s Weekly Mortgage Application survey showed applications for purchase loans rose by a seasonally adjusted 2 percent last week when compared to the week before, and 18 percent from a year ago.
Refinancing demand was up 5 percent week over week and 18 percent from a year ago.
Joel Kan
“Mortgage rates moved lower last week, following declining Treasury yields as economic data releases signaled a weakening U.S. economy,” MBA Deputy Chief Economist Joel Kan said in a statement. “As a result, the 30-year fixed rate decreased for the third straight week to 6.77 percent.”
After hitting a 2025 high of 7.05 percent on Jan. 14, rates for 30-year fixed-rate conforming mortgages gradually descended to this year’s low of 6.48 percent on April 4, according to loan lock data tracked by Optimal Blue. But uncertainty over the impacts of a new tariff regime announced on April 2 and subsequent trade negotiations sent rates back up to a recent peak of 6.92 percent on May 21.
Mortgage rates trending down again
Mortgage rates have been trending down again in recent weeks, averaging 6.61 percent on Tuesday, as concern over the potential for tariffs to rekindle inflation gives way to worries that slowing job growth and rising unemployment are warning signs that the economy is slowing.
Growing for-sale inventory has been supporting homebuying, “but on the other hand, recent weakness in the economic environment has deterred some prospective homebuyers,” Kan said.
Applications to refinance accounted for nearly 42 percent of loan applications last week, the highest level since April, Kan said.
Federal Reserve policymakers have resisted pressure from the Trump administration to lower interest rates, voting 9-2 on July 30 to hold short-term interest rates unchanged.
The Fed doesn’t have direct control over mortgage rates, which have been coming down in part because investors who fund most home loans view Treasurys and mortgage-backed securities (MBS) as a safer place to park their money than the stock market in a downturn. Increased demand for Treasurys and MBS translates into lower rates for mortgage borrowers.
Economy ‘on precipice of recession’
But with economic data flashing warning signs of a recession, futures markets tracked by the CME FedWatch tool on Wednesday put the odds of a Sept. 17 Fed rate cut at 95 percent, up from 48 percent on July 30.
“The economy is on the precipice of recession,” Moody’s Analytics Chief Economist Mark Zandi posted on X over the weekend. “That’s the clear takeaway from last week’s economic data dump. Consumer spending has flatlined, construction and manufacturing are contracting, and employment is set to fall. And with inflation on the rise, it is tough for the Fed to come to the rescue.”
The Fed’s preferred gauge of inflation, the personal consumption expenditures (PCE) price index, showed inflation moving away from the Fed’s 2 percent target for the second month in a row in June, to 2.58 percent.
The unemployment rate rose to 4.2 percent in July, as the ranks of the unemployed grew by 221,000 from June, to 7.24 million.
While consumer sentiment surveys show uncertainty over tariffs and job loss concerns continue to weigh on homebuyer demand, economists at the MBA and Fannie Mae project falling mortgage rates will boost home sales next year.
The MBA’s most recent forecast projects home sales will rebound by 7 percent next year, to 5.2 million.
Forecasters at Fannie Mae’s Economic and Strategic Research (ESR) Group think mortgage rates will fall to 6 percent next year, boosting home sales by 10 percent, to 5.35 million.
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