Mortgage refinance demand surges 27% as interest rates drop

Back now with a look at the housing market. And mortgage rates dipped again last week, spurring a 27% increase in applications to refinance a home loan. For more on what this means, we're joined on set by Investopedia editor-in-chief, friend of the show, Caleb Silver. This might seem like a silly question, but why are we seeing these people wanting to change their mortgage rates right now? What's going on? We had a lot of people who bought homes after 2002, and they were buying them when interest rates were really high, somewhere between 6% or 8%. So now the mortgage rates are dropping a little bit below about 6.3%. You're seeing this aggressive move to refinance. Now, these seem like big moves, 27% increase, but they're coming off of very small numbers. I feel like I've been here for the past year saying, we're waiting for the housing market to thaw. As the Fed starts cutting rates, we're going to start to see that happen because mortgage rates typically follow the Fed funds rate. It really hasn't happened. Why? Because there's a little uncertainty about the economy, the tariffs that might be coming our way. Those are inflationary, and that will keep the yield on the tenure, which is also very influential for mortgage rates, very high. That's why mortgage rates have been so high lately. So at the meeting next week, that is? That's in six days, six hours, and 15 minutes. I'm not counting. You're counting. They're going to lower rates a quarter point, but rates are still going to be pretty high, around 4.5% the Fed funds rate. Mortgage rates, according to the National Association of Realtors, are going to be in the 6% range next year. So some people are desperate to buy. Some people really want to sell. There is some activity now. Anytime it gets below about 6.3%, you start to see the activity heat up. It's just not what we thought it would be. We thought rates would be well below 6%. So I feel like if I were thinking of refinancing right now, I would see, well, there's more cuts to come. I would feel like I would want to wait a little bit. When is the best time to refinance? And also, if you're a first-time home buyer, when might be the best time to jump in? Yeah, for refinancing, you've got to be careful. Little drops are not going to help you, because you actually have to pay transaction costs when you refinance. So sometimes it's not worth the money. You've got to do the math and see when you're actually going to save money if you're refinancing. If you're a first-time buyer and you want that home, if you've been circling it for a while, 6, 6.5%, 30-year fix, seems like a lot. It's not going to get a lot lower for a long time. So if you need to make the move, make the move. But be ready to close quickly. Have your paperwork approved. Get pre-approved for that loan. Make sure you have enough cash on hand for the closing and all the fees that come with it. For people who are holding out for a serious drop or who are wondering, will it ever be how it was, what do you say to that? They're going to be renting for a while, because we're not going to get a serious drop for a while. We're in this really weird uncertainty period where we don't know how strong the economy is going to be next year, because we don't know what's going to happen with tariffs. We don't know what's going to happen with deportations. Those could be inflationary. The economy is growing now, but is it going to be this strong next year? It's hard to say. So we shouldn't expect a big drop in mortgage rates. But if you're circling a home, if you've been very desperate to buy or sell, these could be the best times in the next few months, because I don't see them dropping much further for quite a while. Follow us on social media.