Homeowners have “no incentive to refinance” as borrowing rates soar

In fact, refinance applications dropped 14% lower than the previous week, plummeting almost 60% since August as mortgage rates increased, the Mortgage Bankers Association revealed on Wednesday. This prevents homeowners from reinvesting from the lack of a higher yield.

“So many people refinanced during the past two years that most homeowners no longer have incentive to do so,” Christopher Maloney, mortgage strategist at BOK Financial, told Bloomberg. “At this point almost the entire universe of conventional 30-year mortgages are out-of-the-money.”

However, some investors believe the worst has come. One of them, Walt Schmidt, mortgage strategist at FHN Financial, told Bloomberg that the gap between yields on coupon mortgages and five- and 10-year treasuries is at its widest since the pandemic hit, making it “relatively cheap.”

“If the Fed ends up hiking by a lot more than is priced now, mortgages will get cheaper,” Schmidt told Bloomberg. “But there are enough investors that think that’s not going to happen.”