Mortgage Refinance Applications Are Collapsing. What s the Impact on the Economy & Markets? | Wolf Street

Homeowners refinance their homes largely for two reasons: One, to benefit from lower interest rates and thereby reduce the monthly payment; or to extract cash from their home whose price has risen. Lower mortgage payments leave homeowners a little extra spending cash every month. And a cash-out refi generates a pile of cash all at once, which can be used to remodel the home, buy stocks or cryptos to get rich quick, pay off maxed-out credit cards that carry 25% interest, make a down payment on a rental property or vacation home, or blow in other ways. Both types of refinancings provide extra oomph for consumer spending and the markets, including the stock and real estate market.

But interest rates have soared in recent months. The average 30-year fixed mortgage rates hit 5.02% yesterday, the highest since November 2018, when it peaked 5.05%, according to the daily measure by Mortgage Daily News. According to the weekly measure by the Mortgage Bankers Association today, the average 30-year fixed mortgage rate hit 4.90%, the highest since December 2018.

And applications for mortgage refis have collapsed. The MBA s weekly Refinance Mortgage Applications Index, released today, dropped to the lowest level since March 2019, down 62% from a year ago, and down 82% from the peak in March 2020:

via wolfstreet.com

That happened fast.