Last week, U.S. mortgage rates dropped to their lowest levels since May 2023, leading to a significant increase in demand for mortgage loans from both homebuyers and existing homeowners.

Data from the Mortgage Bankers Association (MBA) shows that the total volume of mortgage applications last week increased by 6.9% compared to the previous week, marking the highest level since January of this year.

Looking at specific interest rate changes, for 30-year fixed-rate mortgages with loan amounts of $766,550 or less, the average contract rate fell from 6.82% to 6.55%.

For loans with a 20% down payment, the related costs (including loan origination fees) decreased from 0.62 to 0.58.

As for the reason behind the rate drop, Joel Kan, Vice President and Deputy Chief Economist of the Mortgage Bankers Association, explained in a press release:

"Due to the Federal Reserve's dovish rhetoric and a weak jobs report, market concerns about an economic slowdown intensified, leading to a comprehensive decline in mortgage rates last week."

Applications for mortgage loan refinancing, which is the most sensitive to weekly rate changes (i.e., borrowing new loans to repay old ones), increased by 16% last week, 59% higher than the same period last year.

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Although the percentage increase is significant, the base is still small. Most borrowers have loan rates below 5%, and fewer than one million borrowers can save at least 75 basis points (i.e., 0.75%) through refinancing.

It is worth noting that last week's mortgage application volume for home purchases only increased by 1%, but it was 11% lower than the same period last year. In this regard, Kan added:

"Despite the decline in interest rates, home purchase activity only increased slightly. The volume of traditional home purchase loan applications increased, but the volume of government home purchase loan applications decreased."The inventory of homes for sale in some parts of the United States has begun to gradually increase, and homebuyers may be waiting for lower interest rates before entering the market.

Affected by the stock market crash on Monday, mortgage interest rates fell further at the beginning of this week. However, influenced by some more positive economic data on Tuesday, mortgage interest rates rose sharply again.

In response, Matthew Graham, Chief Operating Officer of Mortgage News Daily, wrote:

"When the bond market forces interest rates to reach extreme levels quickly, this usually happens. For example, some of the largest daily declines in mortgage interest rates have followed long-term highs."