Decreasing Mortgage Rates Are Spurring Refinances but Not Home Sales

Mortgage refinances are spiking as mortgage rates have dropped to their lowest level since September 2022. The lower rates have not, however, translated into more home sales.The Mortgage Bankers Association’s weekly survey, released Wednesday, shows conventional refinance applications jumped 5 percent last week. Refinances of VA loans — a no money down mortgage option for veterans, active-duty service members, and eligible surviving spouses — shot up 26 percent.The average 30-year fixed rate mortgage declined to 6.09 percent last week. Mortgage rates are now down about a quarter-point since the start of the year — and down a full point from a year ago — driving an increase in refinances.The average contract interest rate for 15-year fixed-rate mortgages dropped to 5.48 percent from 5.50 percent. Adjustable rate mortgages with a fixed interest rate for the first five years of the loan dropped to 5.23 percent from 5.29 percent.Home prices are up more than 50 percent in the past five years and remain at record highs, but the rate of increases is slowing. A S&P Cotality Case-Shiller National Home Price Index report released this week found that national home prices grew just 1.3 percent in 2025 — the weakest full-year gain since 2011 — and slower than overall inflation.“Decomposing 2025 price returns reveals a year of two halves,” S&P Dow Jones Indices analyst Nicholas Godec said. “The first six months saw prices rise 2.6 percent, while the back half delivered nominal declines of 1.3 percent — and every one of the 20 tracked metro areas posted negative price returns over that same period.”A combination of high home prices and high interest rates have effectively frozen the housing market for several years as homeowners have resisted trading mortgages averaging 3.9 percent from 2015 through 2020 for loans with much higher current rates.The record-high home prices have also shut out many first time homebuyers.President Trump has repeatedly said that lower interest rates will spur the housing market. He has told Fannie Mae and Freddie Mac, the mortgage companies under government conservatorship, to purchase an additional $200 billion in mortgage bonds in an effort to lower mortgage rates.Mr. Trump renewed a call during Tuesday’s State of the Union Address for Congress to ban large financial institutions from buying homes, but there are questions about how much impact that would have on the housing market.“Large institutional investors represent a relatively small share of the national housing stock, and because their activity is often highly localized, it remains an open question whether banning new purchases would meaningfully shift metro-level markets,” Realtor.com senior economist Jake Krimmel said.Mr. Krimmell added that steps need to be taken to boost supply of new homes in order to make a meaningful difference. The pace of building new homes has slowed dramatically in the past two decades as construction costs have skyrocketed and government regulation has increased.But there is hope for a better year for home sales as the spring market gets set to begin. “The combination of lower rates and improving affordability conditions continue to support stronger demand than last year, the Mortgage Bankers Association’s vice president and deputy chief economist, Joel Kan, said.

Decreasing Mortgage Rates Are Spurring Refinances but Not Home Sales

Decreasing Mortgage Rates Are Spurring Refinances but Not Home Sales

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