By Andrew Moran
The U.S. mortgage market experienced significant activity last week as interest rates declined to a one-year low, according to new industry data.
For the week ending Sept. 12, the average 30-year fixed rate mortgage decreased by 10 basis points to 6.39 percent—the lowest level since October 2024—the Mortgage Bankers Association said on Sept. 17.
The sharp drop in interest rates has stimulated mortgage demand, particularly for refinancing.
Applications to refinance a home loan soared by 58 percent from the previous week. They were also 70 percent higher than the same time last year. The refinance share of mortgage activity climbed to 60 percent of total applications, up from 49 percent in the previous week.
Mike Fratantoni, the association’s chief economist, said in a news release that homeowners with larger loans were the first to react.
“Homeowners with larger loans jumped first, as the average loan size on refinances reached its highest level in the 35-year history of our survey,” he stated. “Almost 60% of applications were for refinances, but there was also a pickup in purchase applications.”
Additionally, even as 30-year fixed mortgage rates have steadily declined, refinance applications for adjustable-rate mortgages surged, accounting for nearly 13 percent of total applications. This is the highest level since 2008.
“Notably, ARMs typically have initial fixed terms of five, seven, or ten years, so those loans do not pose the risk of early payment shock that pre-2008 ARMs did,” Fratantoni added. “Borrowers who do opt for an ARM are seeing rates about 75 basis points lower than for 30-year fixed rate loans.”
In the end, overall mortgage demand increased by nearly 30 percent last week as rates continued to fall amid sliding Treasury yields.
Yields for Treasury securities have fallen dramatically in recent weeks, with the benchmark 10-year hovering around 4 percent—down approximately 30 basis points from a month ago. This trend has been driven by expectations of Federal Reserve rate cuts, weaker U.S. economic prospects, and strengthening demand for government bonds.
Thirty-year mortgage rates tend to track the 10-year yield.
Pandemic-Era Refinancing Boom
The last time the mortgage refinance market was as active was at the onset of the COVID-19 pandemic.
By late 2020, mortgage rates had declined by approximately 200 basis points to an all-time low of 2.68 percent as the Fed cut interest rates and Treasury yields plummeted.
Many homeowners took advantage of these conditions.
According to a May 2023 paper published by New York Fed economists, one-third of all outstanding mortgage balances were refinanced “during the seven quarters of the refi boom.” Once the central bank began tightening monetary policy, “this put a quick end to the surge in refinances,” the report stated.
Similar trends were observed in the refinance mortgage market in 2003 and 2013.
The pandemic-era refinancing boom led to a so-called golden handcuff effect in the mortgage market, with homeowners locking in ultra-low mortgage rates. As a result, when interest rates began to climb, many homeowners refrained from listing their homes on the open market.
This has created a shortage of existing homes, resulting in heightened price pressures in the U.S. real estate market.
In July, according to the National Association of Realtors, the median existing-home sales price rose by 0.2 percent year over year to $422,400. Conversely, the Commerce Department reported that the median sales price for new residential properties was $403,800.
The inversion is atypical. Typically, existing homes are less expensive than new homes, but tighter inventories have driven up resale prices.
Current housing conditions, however, could be improving, says Lawrence Yun, chief economist at the National Association of Realtors.
“The ever-so-slight improvement in housing affordability is inching up home sales,” Yun said in a statement. “Wage growth is now comfortably outpacing home price growth, and buyers have more choices.”
In other industry news, preliminary Commerce Department data show that building permits fell by 3.7 percent to a lower-than-expected 1.312 million in August, and housing starts declined by 8.5 percent to 1.307 million—slightly below the market consensus.
