Declining mortgage rates have prompted an increase in demand for mortgage refinancing.
- Both applications for refinancing and new mortgage loans increased 7.4% last week compared to the week before, according to the Mortgage Bankers Association.
- Average interest rates on 30-year fixed mortgage loans fell from 6.19% to 6.18%. Rates one year ago during the same week were 3.83%.
- Though higher than last year, January’s rates are at the lowest levels since September, prompting a surge in refinancing applications—however, the number of applications were still lower than at the same time last year.
- New mortgage applications to purchase a home increased by 3%.
- The average loan size also increased to $428,000.
Why it’s news
After a stronger-than-expected employment report Friday and talks of raising interest rates further, mortgage rates reacted swiftly.
Federal Reserve Chair Jerome Powell indicated that the strong job market could prompt the Fed to continue interest rate hikes.
“The reality is we’re going to react to the data,” Powell says. “So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have do more and raise rates more than is priced in.”
From Thursday to Tuesday, rates on 30-year fixed mortgages increased by around half a percentage point.
Backing up a bit
A strong jobs report will possibly encourage the Fed to continue raising interest rates to slow the economy and curb inflation. A continuing strong job market could convince the Fed to push interest rates above 5% and keep them high.
On Wednesday, Powell indicated that the public should expect more rate increases in the future. Experts expect at least two 25-basis-point increases with the possibility of a 50-basis-point increase, Bloomberg reports.
“The Federal Open Market Committee raised its benchmark rate by a quarter percentage point to a range of 4.5% to 4.75% this week. The smaller move followed a half-point increase in December and four jumbo-sized 75-basis-point hikes prior to that,” Bloomberg’s Steve Matthews reports.