According to data from the Mortgage Bankers Association (MBA) on Wednesday, the home purchase index increased by 3.5%, and the refinancing index surged by 19.4% due to the decrease in interest rates.

This trend of declining rates has persisted for several weeks. Last week, rates dropped by 10 basis points, marking a 54 basis points decrease compared to a month ago and reaching the lowest point since July for 30-year rates.

Homebuyers are among the first to benefit from the decline in rates. The rise in the home purchase index indicates a growing number of people considering buying homes. Additionally, the refinancing market has experienced explosive growth, with FHA and VA refinancing applications being particularly significant, according to the MBA.

Specifically, in the week ending on December 8th, the average contract interest rate for 30-year home mortgages with a sale price of $726,200 or less decreased to 7.07%, down from the previous week's 7.17%.

For jumbo loans exceeding $726,200, the 30-year interest rate dropped to 7.22%, lower than the previous week's 7.35%. Furthermore, the average interest rate for 30-year FHA-backed mortgages decreased from 6.98% to 6.84%, and the 15-year mortgage rate dropped from 6.8% to 6.67%. Adjustable-rate mortgage rates also declined from 6.58% to 6.47%.

This downward trend in rates provides an opportunity for homeowners to refinance, taking advantage of lower rates to reduce monthly payments or shorten the loan term.

While the rate reduction has positively impacted homebuying and refinancing activities, economists expect rates to continue dropping to the 6% range by the end of next year. This may further stimulate housing demand, but attention should be given to whether housing market inventory levels can meet the needs of homebuyers.

In response to market dynamics, the 10-year Treasury bond yield has also begun to decline, even falling below 4.2%. This reflects market expectations of economic slowdown and potential future interest rate cuts by the Federal Reserve.

Despite the positive effects of rate decreases on homebuying and refinancing activities, most economists anticipate ongoing rate declines into the 6% range by the end of next year. This could further stimulate housing demand, but attention should be given to whether housing market inventory levels can meet the needs of homebuyers.