Rise in mortgage rates clouds economic recovery

by Tim Manni

From the front page of today’s Wall Street Journal:

Rising interest rates threaten to dim prospects for a housing recovery and choke off a refinance wave that was a major plank of the Obama administration’s economic-stimulus efforts.

On Wednesday, rates on 30-year fixed-rate mortgages climbed to 5.79%, up from 5% two weeks ago, according to HSH Associates. That jump will cut roughly in half the number of borrowers with an incentive to refinance, according to FTN Financial.

Refinance activity at J.P. Morgan Chase & Co. is already “really down” since rates began rising, a spokesman says. A rate of 4.75% “seemed to be the switch” that turned on refinance activity, he says. Now, rates are a full percentage point higher.

Will this short-circuit the refi and homebuying that has been fueled by historically-low rates? We’ll explore that in the upcoming HSH Market Trends newsletter.

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Tags: HSH in the News, Wall Street Journal

6 Responses to “Rise in mortgage rates clouds economic recovery”

How You Can Fix a Xbox 360 From The Red Rings of Death | Online Gaming News Says: June 13th, 2009 at 6:53 am

[...] Rise in mortgage rates clouds economic recovery | HSH Financial … [...]
Mark Nibbe Says: June 13th, 2009 at 3:25 pm

There is no doubt that the rise in fixed mortgage rates will cut refinance applications by at least 90%. It is unbelievable to me that at a time when consumers could use more money in their pocket to spend on other things that the fixed mortgage rates dont go down to around 4% on a 30yr. fixed. The fed could control that they are controlling everything else.
Tim Manni Says: June 15th, 2009 at 10:39 am

Mark,

Granted, consumers do need all the help they can get, but one of the biggest reasons that mortgage rates are where they are at, even now around five and a half percent, is b/c of the Fed. We should be careful what we wish for in a sense. There has been so much Federal intervention in the marketplace as is. The Fed should be introducing exits strategies, not thinking of more ways to distort what a normal market should be. Historically, our current rates are fantastic.

Thanks a lot for commenting,
Tim
Mark Nibbe Says: June 15th, 2009 at 8:13 pm

Tim,
I agree by comparison to past interest rates that current rates are good but the comparison ends there in my mind. The reason I say that is we are in unmarked territory with this current financial situation, I am a prime example of someone who is not buying anything because I dont know what tomorrow brings, the only way to get people to spend more money is to put more money in their pockets. I also believe to stop the freefall the housing industry is in you need low rates to make the homes more affordable, low rates will do this and I believe in time it will drive home values back to where they should be, not necessarily to where they were. As this happens you start to level home prices off with a mix of realistic rates and realistic sale prices. In the mean time consumers like myself are spending money and growing the economy.
Mark
Tim Manni Says: June 16th, 2009 at 9:36 am

Hey Mark,

Very true — we are certainly in unmarked financial territory. I think nearly everyone can understand the spending reservations — nearly every industry is on alert. Unfortunately our government has tried many different ways to pad our pockets, but none have worked too well (stimulus checks especially!).

While lower rates will certainly help increase refi’s, shoring up employment and falling home prices will restore confidence in the housing market more than 5% mortgage rates will.

I just wrote a story yesterday about VP Biden admitting that they underestimated how bad unemployment would get. He said Washington overestimated the impact the stimulus package would have on jobs. The effects from unemployment are bleeding into several sectors, making our economy extremely shaky in its path. When people have money, and more importantly the confidence that they won’t lose their job, that’s when I believe the country will dig in its heels for a real turnaround.

Great conversation,
Tim
Mark Nibbe Says: June 16th, 2009 at 1:54 pm

Tim,
Exactly my point, people are losing their jobs because no one is spending any money and no one is spending any money because they fear losing their jobs. Now arguably there are alot more reasons than that but lets face facts the expense burden on the middle class American Family of 4 has gotten way out of hand. Mortgage pymt. $1000 + mo., Health care Ins. $800 + a mo., Out of pocket health care expenses like medication etc., Food $800 + a mo., Gas moving towards $3 a gallon, Home heating and cooling expenses, Transportation expenses to and from work and activities (car payments, maintenence, ins etc), Clothing, Personal care items, the list goes on and on. Now the Government says they can do very little or nothing about the above list of Item’s. But looking at the above list what would be the easiest to attack, as I see it low rate Mortgages. I understand it’s not the cure all but it would be a big step in helping middle class familys lower their cost of living so they could spend more money on other things like Home repairs, Vacations, New Vehicle, an occasional night out, a cup of coffee etc. Just in my own case I could save up to $700 a month on my mortgage payments at a 4% fixed rate. I guarantee you I would be spending most of that money on other things and maybe saving some of it. I really believe there are alot of me’s out there that would do the exact same thing I believe this would be the best stimulus package where everyone wins.
Mark