The Return of the Mortgage Catalyst

Editor’s Note: Yesterday, Freddie Mac said the rate on a conventional 30-year mortgage dropped below 6% for the first time since late 2023. I checked with acquaintances in the mortgage business, and they told me both inquiries and activity are picking back up. Some noted that sub-6% has been an important threshold in the past for those looking to buy or refinance a home.

So, I thought this would be the perfect opportunity to re-highlight a catalyst I believe will boost the economy going forward.

The Return of the Mortgage Catalyst

• Conventional mortgage rates have dropped 180 basis points since late 2023.

• Total interest paid on a $400k loan has dropped by 28%.

• Fannie Mae said refinancing activity is up 140% year-over-year.

A subtle but powerful economic growth driver is starting to come alive…

For several months, I’ve been highlighting what I believe will be an important economic catalyst this year - mortgage refinancing activity. You see, over the last few years, we’ve seen a huge drop in home financing costs. After peaking at 7.8% in November 2023, the rate on a conventional mortgage has been under steady pressure. Last summer, it was down to 6.8%. And now, with the Federal Reserve having lowered interest rates, it has dropped below 6% for the first time since 2022…

That move matters. As the Dallas Fed has noted, when policy rates fall, the transmission channel runs straight through the household balance sheet. Lower borrowing costs reopen the refinancing window, letting homeowners reset their mortgages at cheaper levels or tap accumulated equity through cash‑out refis. The same dynamic makes home‑equity credit lines more attractive, expanding access to revolving credit as property values rise relative to outstanding balances.

The net effect is simple: easing unlocks liquidity. Lower rates mean less interest paid over the life of the loan—and smaller monthly payments. That frees up disposable income. More money to spend. More money to invest. And more fuel for economic growth. That should underpin a steady rally in the S&P 500 Index.

But don’t take my word for it, let’s look at what the data’s telling us…

Lower borrowing costs boost the spending power of households and companies alike. Over the past few years, both Wall Street and Main Street have been dealing with some of the highest borrowing costs since the fed funds rate hit 6.5% back in 2000. Now, with the potential for even lower interest payments over the next 12 months, consumers and businesses are refinancing debt. That means more cash to deploy elsewhere.

To see the impact, let’s look at how the drop in mortgage rates changes monthly payments. As noted earlier, the rate on a traditional 30-year mortgage recently dipped below 6.2%, down from 6.9% this spring and 7.8% in late 2023, according to Freddie Mac. For a $400,000 home, that shift translates into real savings.

Compared to nearly two years ago, a buyer today is saving almost $500 a month. That’s money that can go toward furnishings, travel, or investments. Over the life of the loan, it adds up to about $170,000 in savings. And if rates fall further, the benefits will grow.

That’s why we’re seeing a boom in mortgage refinancing…

When rates spiked in early 2022, refi activity collapsed. Taking out a new loan meant paying more interest and facing a bigger monthly bill. By early 2023, refinancing transactions were down 86% year-over-year. But by August 2024, as the Fed signaled a return to easing, borrowing activity rebounded. According to Fannie Mae, refinancing activity is now up 140% from 2025—and 272% from 2024.

Now, look at the historical relationship between rising refis and economic growth…

In the chart above, I’ve mapped the annualized pace of growth in Fannie Mae’s Refinancing Application Level Index against real GDP growth from the U.S. Bureau of Economic Analysis. The pattern is clear. When refinancing surges, GDP tends to follow. And when the mortgage boom fades, growth slows.

The numbers we just surveyed make the story pretty clear: the refinancing engine is revving up again. With the drop in mortgage payments, a family purchasing a $400,000 home is now keeping roughly $5,200 a year that would’ve gone to interest back in late 2023. That’s real spending power flowing back into households.

And the runway isn’t used up. The Fed has endorsed at least one cut in 2026, while Wall Street is penciling in two. If 30‑year mortgage rates fall in line, homeowners could see another round of meaningful monthly relief.

This isn’t simply a story about lower borrowing costs — it’s about releasing actual cash. Thousands of dollars per family, year after year. That kind of shift doesn’t seep into the economy—it floods through it. It boosts consumption, supports earnings, and accelerates growth.

If the Fed keeps easing, we’re not looking at a gentle rebound — we’re looking at a renewed upswing. The spending power is in place. The liquidity is building. The catalyst isn’t on the horizon. It’s already in motion. And it should provide a solid foundation for continued strength in the S&P 500.

Five Stories Moving the Market:

Dell Technologies gave an outlook for sales of its artificial intelligence servers that exceeded estimates, a sign of robust demand for machines helping fuel the AI data center build-out – Bloomberg. (Why you should care - the company will generate about $50 billion in AI server revenue in the current fiscal year, which ends in January 2027

Anthropic this week showcased new updates to Claude Cowork, that featured software giant Salesforce and added integration capabilities with Google apps, Docusign, LegalZoom, and others; following the presentation, investors began to understand that software companies are likely to play a role in aiding AI disruption, even if some might be better insulated than others – WSJ. (Why you should care - Anthropic directly countered the “AI will kill software” narrative by showing that Claude is becoming an enterprise‑grade software amplifier, not a software replacement)

CoreWeave expects capital expenditure to double this year, as it spends heavily to scale up its AI cloud platform to handle the massive computing power its customers demand for training and deploying advanced AI models – Reuters. (Why you should care – the company said the build out is helping to secure contracts but it will place short term pressure on margins)

The U.S. has told non-emergency staff at its embassy in Jerusalem that they’re allowed to leave Israel, citing heightened safety risks; tensions between the U.S. and Iran remain high, with the two engaged in talks to avert American strikes on the Islamic Republic – Bloomberg. (Why you should care – this could stoke concerns about an imminent U.S. military strike on Iran)

Federal Reserve Governor Stephen Miran said the Fed should still cut a full percentage point from its policy rate this year because there were still risks to the labor market while inflation was no longer a problem – Reuters. (Why you should care – Miran, a policy voter, is making his case for why he’ll likely support a rate cut at the upcoming meeting in March) 

Economic Calendar:

Earnings: FRO, GSAT

Japan – Tokyo CPI for February

Japan – Industrial Production for January

Japan – Retail Sales for January

France Consumer Spending for January (2:45 a.m.)

France – CPI (Preliminary) for February (2:45 a.m.)

France – GDP (Preliminary) for Q4 (2:45 a.m.)

Spain – CPI (Preliminary) for February (3 a.m.)

BOE’s Pill (Chief Economist) Speaks (8 a.m.)

Germany – CPI (Preliminary) for February (8 a.m.)

U.S. – PPI for January (8:30 a.m.)

Canada – GDP (Preliminary) for Q4 (8:30 a.m.)

U.S. – Chicago PMI for February (9:45 a.m.)

U.S. - Baker Hughes Rig Count (1 p.m.)

U.S. - CFTC’s Commitment of Traders Report (3:30 p.m.)

Fed Releases Balance Sheet Updates on Commercial Banks (4:15 p.m.)