Call it Exhibit A of cause and effect at work.
Signals from the Federal Reserve foreshadowing a September federal funds rate cut helped accelerate the downward trend of mortgage rates last week, leading to a 21% week-over-week jump in the dollar volume of refinance applications, according to the Refinance Application-Level Index (RALI) from Fannie Mae.
Per Freddie Mac’s weekly mortgage rate data, the average 30-year fixed mortgage rate fell to 6.73% in the week ending Thursday, Aug. 1. That’s the lowest level since February.
The dip in financing costs was notable trigger for RALI, which sources data from Fannie’s automated Desktop Underwriter system weekly to track refinance trends. RALI has two readings, tracking the dollar volume and count of refinance applications: The dollar volume index is up to a reading of 155.4, while the count index rose to a reading of 85.7. Those are levels unseen in the index for nearly two years, noted Doug Duncan, chief economist at Fannie.
“Following the drop in interest rates observed last week, refinance applications increased by over 20% week over week,” he said. “This brought refinance activity back to the highest level seen since September 2022, when mortgage rates began approaching 7% for the first time since 2002.”
Year over year, last week’s RALI dollar volume reading was up 47.7%. Compared to October 2023, when mortgage rates hit their recent peak (7.79%, per Freddie Mac), RALI dollar volume was up nearly 88.8%.
There remains a long way to go for the refi market; the index still remains historically weak, hovering near a recent low since at least 2019. Consider, for example, that RALI’s dollar volume index is down by more than 85% compared to the refinance boom in the third quarter of 2020. But last week’s rally is a start, and further favorable rate shifts will go a long way toward an index rebound.
“If the recent drop in longer-term rates is sustained, then we expect to see another uptick in refinance applications and subsequent refinance mortgage volumes this week,” Duncan said.
