American homeowners and prospective buyers had been biding their time, waiting for a decisive move from the Federal Reserve to reignite the mortgage market.

That moment came on Sept. 18, when the Fed's large and unexpected 50-basis-point rate cut—bringing the target range to 4.75%-5%—opened the floodgates for mortgage refinancing and home purchases.

According to the Mortgage Bankers Association (MBA), applications jumped 11% in the week ending Sept. 20, building on the previous week's 14.2% surge and pushing activity to its highest level since June 2022.

The spike in demand has closely followed the broader trend in benchmark mortgage rates. The average rate on a 30-year fixed — often the go-to option for American homebuyers — fell to a two-year low of 6.13%.

Refinancing Boom: Time To Seize Mortgage Moment

The surge of activity was particularly elevated in refinancing, which had been dormant amid years of high borrowing costs.

Refinancing applications soared by 20% last week, as homeowners moved quickly to lock in lower rates and cut their monthly mortgage payments.

The refinance application index has rallied to levels last seen in late March 2022. Lower mortgage rates can directly translate into lower monthly payments for millions of Americans, making refinancing an appealing option. For example, a homeowner with a $300,000 loan at a 7% rate could save around $300 per month if they refinance into a 6% loan.

Historically, periods of falling interest rates have coincided with stronger home-buying activity, and this time appears to be no different.

"Mortgage rates likely had this cut — and this expected rate path — priced in, and lower mortgage rates, now close to 6%, have resulted in much more refinance and some additional purchase activity in recent weeks," said Mike Fratantoni, MBA's senior vice president and chief economist.

"If mortgage rates remain near these levels, it will support a stronger-than-typical fall housing market, and next spring could see a real rebound in activity," he added.

The Vanguard Real Estate ETF (NYSE:VNQ), which tracks the broader real estate sector, was flat in premarket trading following the news. Similarly, the iShares Residential and Multisector Real Estate ETF (NYSE:REZ), which has more direct exposure to the housing market, held steady.

Meanwhile, the VanEck Mortgage REIT Income ETF (NYSE:MORT) saw a slight uptick of 0.5%.

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