'Refinancing Boom' is explained in detail and with examples in the Real Estate edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
A refinancing boom refers to the points in the market where the share of the refinance mortgage applications is greater than 50% of the total applications. This is the definition that home lending agency giant Freddie Mac employs. They determine both the start and the end of ref booms based on this 50% of MBA’s survey figure for the weekly applications. This information provides data for both government and nonconforming loans alongside the traditional loans making it a good all inclusive basis.
Under this Freddie definition, the refinancing boom began in 2008 in the third quarter. It lasted almost six years into 2014. This made it the longest lasting refi boom since Freddie Mac began issuing its quarterly report on refinance activity back in 1990. It was actually during the week of May 2nd that the share of refi applications declined under 50%.
The week before this gave a warning that volume would drop below that critical level as total application volume reached its lowest level since December in 2000. Even though refi applications rose above 50% the following week May 9th, this still represented a break in the statistics that Freddie Mac utilizes. This explains why they described the end of the long lasting refi boom in May of 2014.
Because of this it is not easy to concretely define when these refi booms start and finish as the market share of loan volume that is refinancing can fluctuate. Besides this overall mortgage activity volume can be down in total, and yet the market still can be called a refi boom if the refi percentages exceed 50%. This is why there are other competing definitions of what constitutes a refi boom.
Another popular rival definition that has gained some traction on defining refi booms has to do with the volume of overall originations. When the all around origination volume rises on a year over year basis and this happens because of a boom in refinance activity, this better signifies that a refi boom is underway. This can still be somewhat misleading. There could be a seemingly greater number of refinance applications at a given time if home sales are less than impressive. This would lead to a decline in mortgage purchase applications.
Despite these alternative definitions, Freddie Mac continues to use the one it pioneered on refi booms. According to this traditional definition of the booms, Freddie Mac called the end to the longest refinance boom in history during 2014 in the second quarter. This happened in part because the market shifted to one that was dominated by purchases that exceeded 50% of total applications for the first time since the year 2000.
Freddie Mac compiled interesting statistics on this longest refi boom in American history. They saw more than 25 million different American homeowners engage in refinancing their mortgages during the boom. This equated to the total savings in interest payments of more than $70 billion.
A number of industry observers felt that the refi boom actually ended a year earlier than Freddie Mac’s official call. Many watchers claimed that cooling of refinance and origination loan activity in 2013 in the spring signaled the end of the refi boom. By that point the market had already taken hits to refinance applications and activity because of the quick increase in the mortgage interest rates.
The higher interest rates removed the incentive for homeowners to continue refinancing their mortgages. This is why many economists called the end of the refi boom a full year before Freddie Mac did.