U.S. MBA Mortgage Refinance Index Surges to 937.0: Sector Rotation Strategies in a Shifting Refinancing Landscape

The U.S. MBA Mortgage Refinance Index's surge to 937.0 in December 2025 marks a pivotal shift in the housing market, driven by declining mortgage rates, Federal Reserve rate-cut expectations, and improved affordability. This surge has profound implications for sector rotation strategies, as investors must recalibrate portfolios to align with the evolving dynamics of refinancing activity. Below, we dissect the key sectors impacted and outline actionable investment approaches.

1. Construction Materials and Home Improvement: Overweight Opportunities

The refinance boom has unlocked over $100 billion in home equity, fueling demand for construction and home improvement projects. However, the sector faces margin pressures from rising material costs and labor shortages. Investors should overweight construction materials suppliers such as Caterpillar (CAT) and Vulcan Materials (VMC), which benefit from increased infrastructure and renovation activity. Additionally, homebuilder ETFs like XHB (which tracks residential construction firms) could see short-term volatility, but hedging with options may mitigate risk.

2. Banking and REITs: A Bifurcated Outlook

The banking sector exhibits a mixed response to the refinance surge. Mortgage REITs (mREITs) like Annaly Capital Management (NLY) and AGNC Investment Corp (AGNC) face margin compression due to accelerated prepayments, as refinancing reduces the duration of their fixed-rate mortgage-backed securities. Conversely, residential REITs such as Equity Residential (EQR) and Ventas (VTR) may benefit from increased rental demand as homeowners refinance and shift to the rental market.

Traditional banks, however, are recovering profitability. JPMorgan Chase (JPM) and Bank of America (BAC) reported average pre-tax net production profits of $950 per loan in Q2 2025, up from a $28 loss in Q1. Investors should adopt a defensive stance in mREITs during high-refinance periods and consider long-term positions in diversified banks, which have demonstrated resilience during past rate hikes.

3. Automotive Sector: Underweight Amid Housing Demand

The automotive sector inversely correlates with the MBA Index. As mortgage demand rises, consumer spending shifts toward housing, causing underperformance in automotive stocks like General Motors (GM) and Ford (F). Auto loan delinquency rates have risen by 24% since 2021, reflecting affordability challenges. Investors should underweight auto ETFs like XCAR during high MBA Index readings. However, opportunities remain in prime borrowers and home equity access via HELOCs, with long-term exposure to EV manufacturers like Tesla (TSLA) offering growth potential.

4. Tactical Allocation: Balancing Growth and Risk

Tactical allocation strategies should prioritize sectors aligned with the current refinancing cycle. During high MBA Index periods (>240), overweight construction materials, residential REITs, and diversified banks. Conversely, underweight auto ETFs, mREITs, and discretionary sectors. When the index dips below 220, investors should reverse these allocations, favoring auto manufacturers, EVs, and credit-building financial services.

Conclusion: Navigating the Refinance-Driven Market

The U.S. MBA Mortgage Refinance Index's surge to 937.0 underscores a market in flux, driven by macroeconomic expectations and borrower behavior. As the Federal Reserve contemplates rate cuts in 2026, a balanced approach leveraging historical correlations and real-time data will be critical. Investors should prioritize sectors poised to benefit from refinancing activity while hedging against those likely to underperform. By aligning portfolios with the shifting refinancing landscape, market participants can capture growth while managing risk in an increasingly dynamic environment.