The number of residential mortgages refinanced in California jumped in the second quarter (Q2) of 2019. 76,200 mortgages were refinanced in Q2 2019, above the 46,100 mortgage refinances taking place in the previous quarter and well above the number of refinances closed one year earlier. Recently, refinancing was most popular at the end of 2012, when mortgage interest rates were at all-time lows. When interest rates rose, refinancing simply made less sense for homeowners. Refinances bounced back in 2016, only to fall through the end of 2018 alongside rising interest rates. In 2019, mortgage rates have fallen back temporarily in preparation for the coming recession. Refinances have responded accordingly, increasing as rates have decreased. 2012 was the bottom of a 60-year rate cycle: 30 years of descending mortgage rates, followed by another 30 years of rising mortgage rates. Thus, the long-term outlook is one of steadily rising rates. However, the Federal Reserve (the Fed) began to drop rates in 2019 in preparation for the next recession, which will keep interest rates low for the next three-to-four years before they resume their upward march. Therefore, expect refinances to continue to rise through the end of 2019 and into 2020, in tandem with decreasing interest rates. Refinances made up 50% of the 152,500 mortgage originations in Q2 2019, with purchases making up nearly all the difference. This share is higher than the previous quarter, as mortgage originations plateaued in Q2 2019 and falling interest rates have attracted a higher number of refinances. The single largest influence on the downward trend in refinancing over the past 12 months has been the increase in mortgage rates through much of 2018, followed by falling interest rates in 2019. Today’s lower mortgage interest rates are held down by bond market investors and the Fed’s efforts to hold benchmark rates steady, for now.

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