What does the chart show?
 
This chart shows the current US average 30-year (Y) fixed mortgage rate versus the number of mortgage refinancings. The 30Y fixed mortgage rate is the average rate offered by mortgage providers on home loans to borrowers. This rate then stays the same throughout the entirety of the 30-year term unless the loan is refinanced, or the home is sold. The refinancing index gives an indication of the number of mortgage refinancings in the US housing market. The index is rebased to 100 at 1990 levels, with an April 2023 value of 443 suggesting that the number of refinancings was more than 4x times higher than when the index was first measured. This value is still significantly lower than the index value of 4,781 seen during the earliest stages of COVID-19. Having fallen steadily to as low as 2.88% is early 2021, the average offered rate has risen dramatically to 7.13%.

 Why is this important?

 The state of the US housing market is closely linked to the health of the US economy as a whole. Rising house prices generates a wealth effect for consumers whose houses will often be their most valuable asset. The housing market is also one of the ways interest rate hikes from the Fed feed through to consumers, and eventually tackle inflation. Higher rates increase the cost of borrowing as seen by the increase in the average mortgage rate. The expectation is that higher monthly mortgage payments lead to lower demand for other goods from consumers, and so economic activity cools. However, the US housing market is unique globally in that the dominant home mortgage product is a 30-year fixed rate mortgage, meaning that until it is refinanced the borrower pays the same rate for the entire term. In other countries the dominant mortgage product is either a shorter-term mortgage that needs to be refinanced more frequently, or a variable rate mortgage that matches a base rate such as the local central bank rate. When interest rates fell during the pandemic, the average offered 30Y rate fell too, reaching an all-time low of 2.88%. Consumers jumped at the opportunity to refinance and lock in a historically low rate for their mortgages with the volume of refinancings at its highest since 2013. The effect is that US consumers have remained largely unaffected by the Fed’s aggressive rate hikes. The volume of refinancings has plummeted and the proportion of newly built versus existing home sales currently sits at twice its historical average, both suggesting that US homeowners are extremely unwilling to give up their low-rate mortgages. Consumption has recently been the sole driver in helping the US economy avoid a downturn. The surprisingly healthy position of US homeowners could help to explain why.