What the purchase and refinance indices can tell us

The Purchase Index measures mortgage loan applications for home purchases, not the actual number of mortgage loan approvals. The index covers approximately 75% of mortgages issued. The Purchase Index is adjusted for seasonality since the home buying market is sensitive to the time of year, with home purchases typically surging in the summer months and dipping in winter.^Footnote3

Obviously, housing purchases are driven by a variety of factors including the strength of the economy, housing affordability and inventory. This index is often used as an indicator of the overall housing market strength and consumer confidence in purchasing homes. The higher the Purchase Index rises, the stronger the demand for home buying. When the index rises, more homebuyers are entering the market. When the index dips, home purchases have slowed due to economic uncertainty, high mortgage rates, housing affordability issues or a combination of those factors.^Footnote3

Like the Purchase Index, the Refinance Index measures mortgage loan refinance applications of existing mortgages and covers approximately 75% of mortgages issued. Unlike the Purchase Index, the Refinance Index is not seasonally adjusted because it’s not as sensitive to seasonality.^Footnote4

The Refinance Index is driven by essentially one major factor: mortgage rates. When mortgage rates drop significantly, refinancing applications surge as homeowners look to tap into their home’s equity, lower monthly payments or shorten loan terms, and the Refinance Index rises. When mortgage rates stagnate or rise, refinancing applications tend to drop, and the Refinance Index drops accordingly.^Footnote4

As the graph shows, over the past decade, the Purchase Index saw a slow, steady rise from 2015 to 2020, when there was a dip at the beginning of the pandemic, immediately followed by a spike that lasted through 2022 and then tapered toward normalcy again, where it has remained. At the time this article was written (mid-March 2025), the Purchase Index sat at 154.6, up 7% from the previous week and up 5% from last year.^Footnote1,2

If the first few months of 2025 are any indication, it would seem the year will see similar trends: the Purchase Index rising and falling seasonally, and the Refinance Index gradually rising if interest rates continue to drop.