American homeowners and prospective buyers had been waiting for the right moment, for the Federal Reserve to make a decisive decision to revive the mortgage market.
That moment came on September 18, when the Federal Reserve's big, unexpected 50-basis-point rate cut (bringing the target range to 4.75%-5%) opened the floodgates for mortgage refinancing and home buying.
According to the Mortgage Bankers Association (MBA), applications rose 11% in the week ending Sept. 20, building on the prior week’s 14.2% increase and bringing activity to its highest level since June 2022.
The surge in demand has closely followed the overall trend in benchmark mortgage rates. The average rate on a 30-year fixed mortgage (typically the preferred option for American homebuyers) fell to a two-year low of 6.13%.
Refinancing boom: it's time to take advantage of the mortgage momentum
The surge in activity was particularly strong in refinancings, which had been dormant amid years of high borrowing costs.
Refinancing applications rose 20% last week as homeowners acted quickly to lock in lower rates and reduce their monthly mortgage payments.
The refinance application rate has rebounded to levels not seen since late March 2022. Lower mortgage rates can directly translate into lower monthly payments for millions of Americans, making refinancing an attractive option. For example, a homeowner with a $300,000 loan at a 7% rate could save about $300 per month by refinancing their mortgage to a 6% loan.
Historically, periods of falling interest rates have coincided with increased home-buying activity, and this time appears to be no different.
“Mortgage rates likely had this cut – and this expected rate path – priced in, and lower mortgage rates, now near 6%, have resulted in many more refinances and some additional purchase activity in recent weeks,” he said. mike brotherMe, Senior Vice President and Chief Economist of the MBA.
“If mortgage rates remain near these levels, they will support a stronger-than-usual fall housing market, and next spring could see a real pick-up in activity,” he added.
He Vanguard Real Estate ETF VNQwhich follows the real estate sector in general, remained stable in pre-market trading following the news. Similarly, the iShares Residential and Multi-Sector Real Estate ETF Bookingwhich has more direct exposure to the real estate market, remained stable.
Meanwhile, the VanEck Mortgage REIT Income ETF DEATH experienced a slight rebound of 0.5%.
Read now:
Image: Shutterstock
Market news and data provided by Benzinga APIs
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.