As rates drop, mortgage refinancing surges but home purchase loans remain tepid

Homeowners are rushing to refinance mortgages as rates tumble but the low borrowing costs aren’t motivating buyers.

Total mortgage applications increased 1.5% from a week earlier, the Mortgage Bankers Associations (MBA) said.

The increase was driven by owners eager to refinance mortgages to take advantage of low rates. Applications to refinance climbed 6%.

The average contract interest rate for 30-year fixed-rate mortgages dipped to 4.23% from 4.33%, the lowest level since the first week of January in 2018.

“Some borrowers, particularly those with larger loans, jumped on the opportunity to refinance,” said Mike Fratantoni, MBA senior vice president and chief economist.

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Home buyers were unmoved. Mortgage applications to purchase a home fell 2% and were just 0.5% higher than a year ago. High prices and a shortage of entry-level homes have been chilling sales. For many buyers, the lofty prices are more than offsetting the benefits of low rates.

“Coming out of the Memorial Day holiday, and likely impacted by the financial market volatility caused by the trade tensions, purchase application volume declined for the week,” Fratantoni said. “Potential homebuyers may be more cautious given the heightened economic uncertainty.” Fratantoni added.

The refinance share of mortgage activity increased to 42.2% of total applications from 39.7% the previous week.