• Mortgage rates have fallen by 23 basis points in two weeks, from 4.12 percent on October 5th to 3.79 percent on October 17th.
• The number of refinance requests on Zillow more than doubled from a week earlier on Wednesday, October 15th as rates fell below 4 percent.

Over the past 18 months, refinancing activity has waned as interest rates have gradually risen beginning in May 2013 when the Federal Reserve Board first hinted at its intentions to reduce its asset purchases. But over the past two weeks, interest rates have dropped sharply, making the math on whether or not to refinance more favorable for many mortgage holders.

Prior to the past couple weeks, interest rates rose modestly over the past year and a half, with several periodic rate drops because of fleeting moments of financial panic that pushed global investors rushed toward safe assets. Since mortgage refinances are much more sensitive to interest rates than purchases, refinances have declined as a share of overall lending – from 69 percent of mortgage originations (by dollar volume) in 2013-Q2 to 45 percent in 2014-Q2.[1]

Conventional wisdom suggests that relatively few remaining mortgage holders would benefit from refinancing, either because their mortgage carries a rate below the current market rate, or because the costs associated with refinancing would offset any potential savings.

But recently, the number of borrowers searching for refinance mortgages on Zillow has moved almost exactly in the opposite direction as interest rates – more borrowers are seeking to refinance as mortgage rates have dropped. The figure below shows the weekly percent change in the number of refinance loan requests on Zillow (left axis) and the 30-year fixed mortgage rate (right axis) each day since early September.[2] On Wednesday, Oct. 15, refinance requests on Zillow more than doubled from a week earlier.

Over the past two weeks, the response of refinance requests to interest rates has been stronger than normal. Each of the dots on the figure below shows the relationship between the change in the refinance share and the change in the mortgage rate in a given week over the past year. The two green dots in the scatter plot represent the last two weeks, and the orange line shows the average relationship between the two variables. Weeks above the line had an above-normal response in refinance requests, and weeks below the line had a below-normal response in refinance requests.

Zillow Vice President of Mortgages, Erin Lantz, said she expects mortgage rates to remain stable through at least the next few days. As of Friday, October 17, the average mortgage rate on Zillow was 3.79 percent.

[1] Mortgage Bankers Association, Mortgage Originations data.

[2] The mortgage rate is the average rate offered to borrowers searching for a 30-year fixed rate purchase mortgage with 20 percent down payment or more and a FICO score of 720 or above.