It Takes More Than Just Low Mortgage Ratesby Tim Manni
It takes a lot more than just low mortgage rates to spin the wheels of the housing market; and that couldn’t be more apparent than it is right now. Mortgage rates continue to fall week after week — according to HSH.com the weekly average for the 30-year Conforming fixed rate fell to 4.69% (week ending 7/16/10) — and yet the Mortgage Bankers Association reported the lowest level of mortgage application activity since 1996:
Yet it seems that the economic slowdown which began in May became more entrenched in June, as more signs of weak activity accumulate. Conforming 30-year loans shed two basis points from last week to establish the latest record low, but while low rates have created some new demand for refinancing, the applications index from the Mortgage Bankers Association of America stands at levels not seen since 1996 — and there is little indication that it will pick itself up off the mat anytime soon.
What’s the Issue?
First off, the summer is a slow season for homebuying activity to begin with. Second, two homebuyer tax credits have borrowed from future purchase demand, and lastly, a large portion of borrowers — whether buyers or refinancers — have already taken advantage of the low rates.
Can You Refinance?
Each time rates fall, a new opportunity arises for borrowers to refinance:
Lower mortgage rates are opening a window of opportunity for borrowers with a mortgage rate above about 5.625% to refinance. For conforming 30-year fixed rate loans, this covers a period from roughly July 2003 to November 2008; however, at least a portion of those borrowers have already refinanced, and many others (especially those with post-2005 loans) probably have insufficient equity to allow for a successful refinance.
Don’t Anticipate Much Improvement
Last week we reintroduced the topic of home prices and discussed just how influential they are to our economic recovery. As the latest issue of HSH.com’s Market Trends Newsletter discusses, if other factors such as home sales fail to improve, it will only put more downward pressure on home prices, making recovery all the more difficult.
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