Here’s how sharply mortgage refinancing has dropped off

To say home refinancing activity is a sliver of what it was two years ago is no exaggeration.

In the first quarter of 2021, there were 1.84 million refinances where homeowners secured a lower mortgage rate, according to figures mortgage technology and data provider Black Knight Inc. provided Yahoo Finance. In the final months of 2022, that number was just 9,701.

Here’s what that drop-off looks like.

On Wednesday, figures from the Mortgage Bankers Association reflected this rapid descent. Refinance activity was 76% lower the week ending March 3 versus a year ago as mortgage rates climbed more than a half-point within the past month.

And with rates quickly approaching 7% again, refi activity doesn’t look like it will rebound anytime soon.

The rapid decline in refinancing has rippled through the mortgage industry, resulting in thousands of layoffs.

“Lenders are hurting. We still see layoffs on a monthly basis,” Jason Sharon, owner and broker at Home Loans Inc., told Yahoo Finance. “Applications are nowhere [near where they're] needed to sustain the current workforce."

Additionally, many homeowners who refinanced in the last two years are loath to sell their home only to finance a new one at a rate that’s double or almost triple their current rate – exacerbating the current inventory crisis in the for-sale market.

Roughly 6 in 7 U.S. homeowners with a mortgage in September 2022 had a mortgage rate that was far below 6%, Redfin data showed. That’s 85% of homeowners nationwide who are more likely to put off a refi anytime soon.

Only 161,000 high-quality candidates could shave at least three-quarters of a point off their mortgage if they refinanced at last week’s rate of 6.65%, Black Knight found. High-quality candidates are defined as mortgage holders with a maximum 80% loan-to-value ratio and credit score of 720 or higher.

What's left of the miniscule refi market is cash-out transactions. Roughly 95% of all refinances in the fourth quarter occurred when a homeowner tapped equity, according to Black Knight.

“For now, refinance activity remains near record lows, with the overwhelming majority made up of cash-out lending,” Andy Walden, vice president of enterprise research at Black Knight, told Yahoo Finance.

One way refinance activity could perk up a little is if rates fall below 6%. That may be enough to lure in the new homeowners who bought last year when rates were near their peak.

More than 225,000 home loans originated in 2022 currently carry rates at or above 7%, of which 209,000 are high-quality candidates, according to Black Knight.

“A growing pocket of opportunity exists to refinance recently-originated loans, should 30-year rates drop into the mid- to low-5% range,” Walden said.

Still, that pool of homeowners hoping for a refinance may have to sit on the sidelines a while longer. This week, Federal Reserve Chairman Jerome Powell made it clear he doesn't plan to ease his aggressive stance on interest rate hikes as long as inflation remains a top concern. That could keep mortgage rates higher.

"The latest economic data have come in stronger than expected," Powell told the Senate Banking Committee in prepared remarks on Tuesday, "which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated."

Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

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