Mortgage refinancing declines for 4th straight week despite surging homeowner equity

Despite accumulating a record amount of homeowner equity, Americans still don’t feel the urge to refinance their mortgages due to elevated interest rates.

According to the Mortgage Bankers Association (MBA), home refinance applications declined 2% for the week ending July 5, marking the fourth consecutive weekly drop.

Refinancing has historically been an attractive option for homeowners as it allows them to tap into the equity they’ve accumulated in their homes and take out a loan under more favorable terms.

According to the Fed's latest data, Americans had a record $16.9 trillion in equity at the end of the first quarter. That’s an increase of $1.5 trillion over the past year, according to CoreLogic.

“Although home equity gains have been significant in recent years, most borrowers do not have much of an incentive to refinance at current rates,” said MBA economist Joel Kan.

Since 2022, average 30-year mortgage rates have more than doubled, rising from the low 3% range to 7%. According to Freddie Mac, the 52-week average rate for a 30-year fixed mortgage is 7.02%.

While economists have repeatedly warned that mortgage rates aren’t expected to meaningfully decline this year, recent Fed remarks raised hopes that cuts are around the corner.

All eyes on the Fed

Although the Fed doesn’t expect to make significant changes to its policies this year, central bankers say they’re ready to cut interest rates at a moment’s notice if needed.

According to the minutes of the FOMC’s June 11-12 policy meeting, “A number of participants remarked that monetary policy should be ready to respond to economic weakness.”

That economic weakness is already evident in the slowing labor market, a slowdown in consumer spending, and an unexpected contraction in the services sector—the workhorse of the U.S. economy.

Chen Zhao, the chief economist at real estate brokerage Redfin, thinks another month of weak economic data should allow the Fed “to start laying the groundwork, perhaps as soon as their July 31st meeting, for rate cuts to start in September.”

In the meantime, high mortgage rates have kept new buyers from entering the market and contributed to a 1970s-style housing recession. In fact, existing homes are selling at the slowest pace since 1978, according to ResiClub.

“If mortgage rates stay above 6.5% this year—as we expect—then the chances of an imminent recovery are slim,” wrote Capital Economics’ Thomas Ryan.

According to experts, that's the most likely scenario. Most housing insiders, including MBA, Realtor.com, and the National Association of Realtors, predict mortgage rates will hover above 6.5% this year.