The second week of September saw a surprising increase in the rate of refinancing, with applications increasing by 13% week over week. This is despite the fact that interest rates have remained high, and in fact increased slightly over the same period. This peculiar trend may be a sign that some people expect interest rates to increase even further, with some trying to get ahead of the trend.
An Unusual Increase in Refinancing Applications
Refinancing applications increased by 13% in the second week of September, compared to the previous week. While this is still 29% lower than it was the same time last year, it is still a shockingly large increase in people seeking to refinance their mortgages. This is peculiar because, under current economic conditions, one would expect applications for refinancing to stay low.
Refinancing Up Despite High Interest Rates
Mortgage interest rates have remained high, increasing slightly from 7.27% to 7.31% for 30-year fixed rate mortgages with conforming loan balances. Under normal circumstances, this would discourage people from refinancing, since it is likely they have mortgages with better interest rates than what is available right now. However, for some reason, people are choosing to refinance despite that.
Getting Ahead of Interest Rate Hikes
One potential reason that people may be looking to refinance their mortgages right now is they anticipate interest rates to go even higher in the near future. This means that by refinancing now, they can avoid potentially needing to refinance later when circumstances would be even more unfavorable. Another potential factor is that refinancing is so minimal right now that even a small spike in applications can make a big impact in the market.
What This Means For the Market
Unfortunately, this likely means that most people are not optimistic about interest rates coming down anytime soon. As the Federal Reserve continues to maintain high interest rates to combat inflation, this is a reasonable assumption, but also potentially a risky one. If inflation begins to fall significantly, interest rates may also drop in response, leaving people who refinanced during this period with expensive, high interest mortgages.
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