Homeowners are latching on to a slight rate reprieve

Lenders are once again capturing interest from homeowners, at least in the short-term, as rates dipped under 7%.

The Mortgage Bankers Association's Refinance Index was up by 12% weekly for the period ending Jan. 31, its highest level since December, the trade association said. After weeks of being stuck over 7%, average contract interest rates for 30-year fixed-rate mortgages fell five basis points during the period to 6.97%.

"Mortgage rates moved lower last week, consistent with lower Treasury yields following the FOMC meeting and a volatile week for the stock market," said Joel Kan, the MBA's vice president and deputy chief economist, in a press release. 

The 10-year treasury yield, the key mortgage rate indicator, sits Wednesday morning at 4.44%, after it rose over 10 basis points following the recent Federal Open Market Committee rate pause. The effective rates for products tracked by the MBA all fell last week, albeit slightly. 

The 30-year FRM rate, despite sitting at a six-week low, was not enough to draw home shoppers back to the market even though it was now below the 7% psychological barrier. The MBA's seasonally adjusted Purchase Index, including an adjustment for the Martin Luther King Jr. holiday, fell 4% compared to the seven days prior. 

Refi activity was strong enough to push the trade group's Market Composite Index up 2.2% on a weekly basis. The measure of application activity has been volatile, although swings have been muted since the start of the new year. 

Fannie Mae, in its latest January economic and housing forecast, projected $102 billion in refinance volume by the industry this first quarter, which would be 57% greater than the start to 2024. It recently however downgraded its originations outlook for the rest of 2025 given persistent affordability challenges.

The average purchase loan size hit a four-month high at $447,300, as government loan activity in this segment is waning, the MBA said. Government mortgage buyers aren't seeing any greater rate relief, as Federal Housing Administration-backed loans carried 6.69% average contract interest rates last week, down 3 basis points from the week ago period. 

Jumbo loans, which the MBA still tracks as above 2024's conforming limit of $766,550, had rates of 7.01%, falling just one basis point. Fifteen-year FRMs also ticked down to 6.36%. 

Adjustable rate mortgages still made up a paltry 5.8% of application activity. Applicants enjoyed average contract interest rates falling 37 basis points to 6.07% last week.