Prime Highlights: 

Mortgage application volume increased by 20.4% last week, marking the first rise in three weeks. 

Refinance applications surged by 37%, with a year-over-year increase of 83%. 

Key Background: 

The real estate market saw a notable surge in mortgage demand last week, following a significant drop in interest rates. According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume increased by 20.4% compared to the previous week. This marked the first rise in three weeks and represented an outsized weekly movement. 

The drop-in interest rates played a key role in this shift. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, typically under $806,500, fell from 6.88% to 6.73%, the lowest level since December 2024. This decrease came as a result of weakening consumer sentiment and growing uncertainty over the economic impact of new tariffs on imported goods. 

As a result, refinancing activity surged, with refinance applications rising by 37% week-over-week and 83% higher than the same week in 2024. This uptick is largely driven by homeowners who purchased homes in the past two years, as they can now take advantage of more favorable interest rates. Similarly, applications for purchasing homes rose by 9%, signaling a modest but promising increase in homebuying activity. 

Despite the positive momentum, challenges remain for potential buyers, including high home prices, limited inventory, and concerns about the broader economy. The imposition of new tariffs on imports from China, Canada, and Mexico is expected to push home prices higher, particularly for new construction. While the surge in mortgage applications is promising, the overall housing market still faces significant hurdles as it heads into the spring buying season. The latest trends indicate that while demand is picking up, affordability and supply constraints continue to impact market stability.