Mortgage demand increases by 14% as interest rates reach a two-year low.

• The interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less decreased from 6.29% to 6.15%.
• The number of applications to refinance a home loan increased by 24% compared to the previous week and was 127% greater than the same week one year ago.
• The number of mortgage applications for purchasing a home rose by 5% during the week, but was still 0.4% lower compared to the same week last year.

Last week, mortgage rates decreased once more, leading to an increase in mortgage demand, particularly for refinancing purposes, as there was anticipation that they could drop even more.

On Wednesday, the Federal Reserve is predicted to make its first interest rate reduction in four years. Although mortgage rates do not mirror the Fed precisely, they are affected by policy. It is probable that they will adjust based on Fed Chairman Jerome Powell's comments following the decision.

"Matthew Graham, chief operating officer at Mortgage News Daily, stated that lower mortgage rates are not guaranteed by the Fed rate cut, as they are already factored in. The directionality of the rates depends on the dot plot and Powell's comments in the press conference. Things could go either way, and the volatility could be significant."

The Mortgage Bankers Association's seasonally adjusted index showed a 14.2% increase in total mortgage application volume last week compared to the previous week, after adjusting for the Labor Day holiday.

The interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less decreased to 6.15% from 6.29%, with points increasing to 0.56 from 0.55, including the origination fee, for loans with a 20% down payment. This is the lowest rate since September 2022 and is 116 basis points lower than it was the same week one year ago.

Last week, there was a significant increase in application activity due to the market's anticipation of a rate cut from the Fed, which caused mortgage rates to decrease, according to Joel Kan, an economist with the Mortgage Bankers Association.

The number of applications to refinance a home loan increased by 24% from the previous week and was 127% higher than the same week one year ago. Most of the applicants likely purchased their homes in the past two years, when rates rose sharply from the record lows seen in the first two years of the Covid-19 pandemic. Despite this significant increase in volume, it is coming off a very low base, as the majority of borrowers have loans with interest rates below 5%. Both conventional and government refinancing activity reached their fastest pace since 2022.

The number of mortgage applications for purchasing a home rose by 5% during the week, but was still 0.4% lower compared to the same week last year.

"Notably, conventional purchase applications surpassed last year's pace, resulting in overall purchase applications being nearly on par with the previous year," Kan stated. "Homebuyers are experiencing improving affordability due to lower rates and slower home-price growth."