U.S. refinancing activity skyrocketed in the second week of 2021. Mortgage Bankers Association (MBA) data showed that the refinance index increased by 20.1 percent in week ended Jan. 8 (v +3.0% w/w prior) and was up 92.5 percent compared to the same week one year ago.
Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, said that “Booming refinance activity in the first full week of 2021 caused mortgage applications to surge to their highest level since March 2020, despite most mortgage rates in the survey rising last week“. As a matter of fact the report points to a rebound of the average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 2.93 percent from 2.90 percent in the prior week.
In a context where mortgage rates remain close to the lowest on record*, the recent spike probably pushed several households to rush in refinancing their homes. As a matter of fact, the MBA report also highlighted that “The refinance share of mortgage activity increased to 74.8 percent of total applications from 73.5 percent the previous week.”
The ongoing rise in Treasury yields due to vaccines’ efficiency and expectations of further fiscal stimulus could translate into a more pronounced rebound of mortgage rates in the short term and another potential jump in refinancing applications very soon.
*Note: Usually, it’s beneficial to refinance if the interest rate is at least 50 basis points lower than the current rate a homeowner has, depending on how high the closing costs are.