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U.S. mortgage refinancing index falls to a 20-year low

Mortgage refinancing index falls for 5th straight week hitting lowest level since 2000
Dino Kurbegovic

Mortgage activity has been in decline with the increasing interest rates, a secondary cause of the Federal Reserve’s (Fed) fight against inflation. Further, the housing market in the US has already shown some worrying trends or a recession that indicate a correction in housing prices is around the corner. 

Meanwhile, Christophe Barraud, Bloomberg’s top forecaster, shared a tweet indicating that the mortgage refinancing index fell again, for the fifth straight week, reaching levels last seen in October 2000.

Moreover, the index declined by 4% compared to the previous week, and compared to the previous year, the index is down 83%, with the refinancing share of mortgage activity decreasing by 30.2% of total applications, according to the Mortgage Bankers Association (MBA).  

US refinancing index. Source: Twitter 

Homebuyers on the sidelines

With the economy clouded by numerous worries, internet data shows that more people are looking to sell their homes; however, homebuyers seem to be on the sidelines due to higher mortgage rates. 

Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting, shared his view of the market. 

“Higher mortgage rates have pushed refinance activity down more than 80 percent from last year and have contributed to more homebuyers staying on the sidelines. Government loans, which tend to be favored by first-time buyers, bucked this trend and increased over the week, driven mainly by VA and USDA lending activity.”

A bright spot in a slow market

On the other hand, government-sponsored loan programs seem to be garnering more attention, as they provide financing to first-time buyers. The seasonally adjusted government index rose by 0.2% on a weekly basis, boosting purchases and refinancing. Similarly, the increase in government loans reduced the size of purchase loans from the previous week from $411,300 to $405,000. 

With the tighter squeeze by rising interest rates, the mortgage refinancing index could see more downside, indicating more pain for the broader economy. In addition, housing prices could come down more than they have over the previous month.  

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