Mortgage application activity moved higher in the week ending July 30 with refinancing and purchase activity gaining as mortgage rates eased to new record lows.

The Mortgage Bankers Association reported that the Refinance Index rose an unimpressive 1.3% to ~3966. As a percent of total application activity, refinancing share was unchanged from the previous week at 78%. Meanwhile, the Purchase Index was higher for the third straight week by 1.5% to ~175.

As rates decline further, the better credit quality borrowers (newer 4.5s and 5s) have an increasing incentive to refinance, which should strengthen the Refinance Index. However, most analysts believe it will take a drop to 4.50% (no point) for a significant refinancing wave to occur. The no point rate is currently in the low 4.70s.      

For the month of July, the Refinance Index averaged 3968, up nearly 14% from June as 30-year fixed mortgage rates plunged to a 4.56% average from 4.71% previously. At this time, conventional prepayments are projected to increase 15% on average for August, which will be reported in September. 

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