The Mortgage Bankers Association (MBA) reported this morning that the Refi Index increased 3.2% to 2506.8 the week ending Sept. 26, compared to 2429.7 the prior week.

“In our view, the rise in the index came in response to a week-over-week decline in mortgage rates,” said Citigroup Global Markets in a report released this morning. 

Citi said that despite the fact that mortgage rates have come down almost 80 basis points since peaking at the start of August, they are still approximately 50 basis points over June lows. Analysts added that any further drop in rates would almost certainly result in some rise in refinancing activity.

However, analysts do not expect a major refinancing wave to start unless primary mortgage rates drop by about 50 basis points to reach another record low. They said that unless a new low is reached, the MBA Refi Index would likely change gradually as it responds to moves in mortgage rates, while remaining less than 6000.

Rates dropped further in the week ending Sept. 26. Week over week, mortgage rates dipped by about 10 basis points. This decline brought rates back to levels last seen during the middle of July.

If rates do reach another low, will the index exceed 10,000, as it did in mid-June? Citi said that it is possible, but not likely, due to changes in the composition of the mortgage universe. However, if 30-year rates dip below 5% , which is about 75 basis points away, a new record high in the index is likely.

Looking ahead to tomorrow's Freddie Mac mortgage rate survey, Citigroup predicts that the survey rate would decrease to about 5.75% from last week’s figure of 5.98%. Meanwhile, Countrywide Securities has a slightly higher estimate. The firm predicts the 30-year fixed rate mortgage rate will drop to 5.85%.

The seasonally-adjusted Purchase Index declined 1.1% to 397.8 from last week’s 402.1. The unadjusted MBA Total Market Index increased slightly by 0.9% .The refinancing share increased marginally to 48.2% from 47.2% a week ago.

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