Billions of dollars in potential refinancing savings lost as mortgage rates climb

You snooze, you lose. Faster than you could ever imagine, billions of dollars in potential refinancing savings have pretty much evaporated into thin air. Just weeks ago, mortgage rates had fallen to their lowest level in 19 months as positive economic data turned into chatter on Wall Street for lots of rate cuts from the Fed. Now they are back on the rise. 

As Thomas Ryan, an economist at Capital Economics, previously told Fortune, “Mortgage rates are far more related to the expectation of what the Fed will do rather than what the Fed actually does.”And the outlook for what the Fed will do has changed as the economy has remained robust with inflation looking a bit stickier; it’s no longer clear when the next cut will be or by how much, and that’s why mortgage rates have trended upwards. Before the recent surge, rates reached the closest they’d been to the so-called magic number at around 6%, or preferably anything below, because the bond market was already pricing in many cuts. But that first cut was delivered on Sept. 18, and mortgage rates have pretty much gone up in the weeks since.

Yesterday, the weekly average 30-year fixed mortgage rate came in at 6.32%. Following a stronger-than-expected September jobs report on Oct. 4, mortgage rates saw the largest one-week increase since April, Freddie Mac said. “However, the rise in rates is largely due to shifts in expectations and not the underlying economy, which has been strong for most of the year.” 

Daily mortgage rates are even higher. The latest reading for the 30-year fixed mortgage rate came in at 6.62%, up 36 basis points from a week ago and 40 basis points from a month earlier. Just to provide some more context, the low for the 52-week range is 6.11% in terms of daily rates and 6.08% for weekly ones. The highs for the year, on the other hand, are 8.03% and 7.79% for daily and weekly mortgage rates, respectively. So luckily, despite the recent trend, we’re still well below those numbers. Either way, the latest change in rates might not seem like much, but it matters. Everyone wants a lower mortgage rate. And let’s be real, closer to 6% sounds a lot better; anything near 7% is a bitter pill to swallow when you’re used to the pandemic lows. 

Not to mention, billions of dollars in potential refinancing savings are just gone. A recent analysis from Zillow of data from last year’s Home Mortgage Disclosure Act found more than 434,000 buyers would have benefited from refinancing at a 6.1% mortgage rate. Since they’ve soared to 6.6%, less than 160,000 buyers would benefit from a refinance.

“That means about 275,000 borrowers missed out on the potential refinance savings—a total five-year loss of more than $6 billion combined for those homeowners,” Zillow said. 

Mortgage rates could either hold steady or rise slightly more in the coming weeks, according to Realtor.com. But it isn’t all bad news. Inflation still cooled further last month, so more cuts from the Fed are probably in store, maybe one in November and another in December. If the Fed signals a continued steady pace of further cuts, lower mortgage rates are coming at some point.