May 11, 2022 - Economy

Mortgage refinancing boom winds down

Data: Federal Reserve Bank of New York; Chart: Axios Visuals
Data: Federal Reserve Bank of New York; Chart: Axios Visuals

The recent surge in mortgage rates has snuffed out last year's massive refinancing boom.

Why it matters: It shows the Fed's effort to lift interest rates — which began as a verbal campaign last fall and proceeded to actual rate hikes this year — is already starting to bite.

Driving the news: The New York Fed's quarterly report on consumer debt and credit showed a sharp drop in mortgage refinancing activity. Originations of refi loans fell 15%, to $424 billion, in the first quarter.

  • Refi loan originations are down 40% from the first quarter of 2021.
  • The boom peaked in Q2 of last year, when conventional 30-year fixed mortgage rates hovered around 3%. As rates have risen, they've left fewer people with an incentive to refinance. (Today they're around 5.25%.)

How it works: Mortgage refinancing is a key way the Fed can use interest rates to create economic activity.

  • Refinancing typically lowers your monthly payment, putting more spending money in your pocket that will work its way into the economy.

The bottom line: The Fed is tapping the brakes, and the slowdown is coming.

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