Mortgage Refinance Demand Plummets as Interest Rates Reach 3-Week High

Mortgage refinance demand has significantly dropped as mortgage rates surged to a three-week high, cooling off refinancing activity. The latest data from the Mortgage Bankers Association (MBA) shows that total mortgage applications fell by 12.7%, driven largely by a 21% drop in refinance applications. This decline came as the average contract interest rate for 30-year fixed-rate mortgages rose to 6.46%, making refinancing less attractive. The reduction in the refinance share of total mortgage applications indicates the market's sensitivity to rate fluctuations.

Conventional and VA refinance applications saw declines of 22% and 27%, respectively, while the average loan size for refinances decreased as borrowers with larger loans were priced out of the market. In contrast, home purchase applications dropped by 1%, but were still 16% higher compared to the same week in 2024, though factors such as economic conditions and housing inventory are affecting the strength of the purchase market.

Housing inventory continued to face challenges, with a recent report indicating a decline in inventory in August, and potential sellers increasingly hesitant to list their homes. The ongoing government shutdown is adding uncertainty to mortgage rate movements, particularly with delays in economic data releases, further complicating the housing and mortgage markets.

The outlook for the housing market remains uncertain, with elevated mortgage rates continuing to pressure both refinancing and homebuying activity. Buyers and homeowners are advised to monitor conditions closely, as inventory remains tight and market fluctuations continue to impact affordability and market activity.

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