The first week in August saw a sizable drop in mortgage rates, spurring a spike in mortgage applications. Total mortgage applications were up 5.3% over the previous week, and the number of applications was up 46.5% over the year prior when rates were much higher.
The majority of those applications were refinancing applications. Refinance applications were up 12% over the week prior and a whopping 116% over just one year ago. Meanwhile, homebuyer applications actually saw a 2% decrease last week over the week prior.
Since the beginning of the year, rates have dropped from over 4.5% to 3.7% on August 5th. That decrease amounts to a savings of about $150 a month on a $300,000 loan. That’s a fairly significant difference for most families.
What is Driving the Rate Drop?
The Federal Reserve cut tax rates and the trade war with China have both contributed to the drastic drop in mortgage rates. In fact, the 30-year fixed mortgage rates are as low as they have been since November 2016.
Refinancing is Sensitive to Rate Fluctuations
Driving the increase in refinancing applications, aside from the savings, is that more homeowners are eligible to refinance with the rate drop. Over eight million 30-year term holders could now qualify to refinance, shaving at least 0.075% off their current rate. It is expected that refinancing applications will continue to rise in the coming weeks.
Is Now a Good Time to Refinance?
Definitely! If you are in a position to take advantage of the rate drop, you should definitely contact your broker about your refinance options.
Why Homebuyers Aren’t Rushing In
You would think that with such great rates, homebuyers would be leading the charge to secure a mortgage. And while there is a 7% increase in purchase volume over just a year ago, there is also reluctance on the part of potential buyers.
The same escalating trade war with China, which is making way for the rate decrease, is also causing concern over the future of America’s economy. That leaves buyers reluctant to invest over fears of potential economic crashes. Nobody wants to get locked into a 30-year term that they won’t be able to afford in ten years.
In addition, while some markets are heating up, generally the cost of homes is rising, and the amount of inventory is decreasing.
Is Now a Good Time to Buy?
With the ever-increasing cost of homes, lower interest rates could potentially drive the price of homes up even further, which begs the question, is now a good time to buy a home? The reality is that the best time to buy a home is when you are ready.
If you are ready to buy a home at this time, with the financial means to invest, and you are secure in your future economic prospects, then now is definitely an excellent time to buy.
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