Americans Are Rethinking Refinancing Their Homes

Americans appear to have paused on refinancing home loans amid a slight uptick in mortgage rates, but prospective owners are still prepared to plunge into the housing market and are looking to buy, data from the Mortgage Bankers Association (MBA) showed on Wednesday.

MBA's Refinance Index fell 7 percent for the week ending January 19 from the previous week and was 8 percent below levels it hit a year ago. At the same time, mortgage applications jumped by nearly 4 percent, slightly lower than the increase reported a week earlier but still a sign that buyers are willing to brave elevated rates to acquire a home.

For the week ending January 12, refinancing activity soared by 11 percent and was 10 percent above where it was the same time a year ago, while applications jumped by more than 10 percent.

The average rate for a 30-year fixed-rate mortgage for a property selling at up to $726,200 went up slightly, to 6.78 percent from 6.75 percent a week earlier, which could have slowed refinancing activity.

"Mortgage rates increased slightly last week, but there continues to be an upward trend in purchase activity," Joel Kan, the MBA's deputy chief economist, said in a statement. He added that conventional and Federal Housing Administration loan applications were behind the jump.

"Refinance applications declined over the week and remained at low levels. There is still little incentive for homeowners to refinance with rates at these levels," Kan said.

Mortgage rates have been going down from their peak in October 2022, when they hit 8 percent. The two-decade highs in rates were partly driven by the Federal Reserve hiking rates to battle soaring inflation. Inflation has slowed since then to 3.4 percent last month, and the central bank signaled in December it may be done hiking after it held rates at a 22-year high for the third time in a row.

Some analysts say that economic news suggesting the economy is performing better than expected—and that inflation may take a while to fall to the Fed's target of 2 percent—may have slowed the deceleration of rates seen from a few weeks ago.

However, the slowing down of purchases, as reported by the MBA, may be seasonal, according to Daryl Fairweather, chief economist at real estate company Redfin.

"The bad weather this month has slowed the housing market a bit," she told Newsweek, adding that may have affected purchases but not refinancing.

The reported fluctuations in mortgage rates—Freddie Mac, for example, showed that rates were down to 6.60 percent as of January 18—may just be due to differences in measuring the data.

"The Freddie Mac survey tries to compare apples to apples. So people getting the same kind of mortgage with the same kind of credit score and how that's been changing, and they do that through a survey," Fairweather said. "Whereas other data, they might just take all mortgage applications and average it without trying to control for changes in the types of people who are getting mortgages."