July 19th, 2010 (Modified on July 20th, 2010)

It Takes More Than Just Low Mortgage Rates



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 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’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.

Need a more long-term mortgage-rate forecast? Be sure to check out our two-month forecast. Also, we’ve updated our 2010 Outlook for Mortgage Rates, check it out.

CLICK HERE to continue reading the latest issue of our Market Trends Newsletter.

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7 Responses to “It Takes More Than Just Low Mortgage Rates”

  1. Robert F. Says: July 19th, 2010 at 1:23 pm

    I think “two homebuyer tax credits have borrowed from future purchase demand” is right on the money.

  2. Tim Manni Says: July 19th, 2010 at 2:51 pm

    Thanks Robert!

  3. Steve Says: July 20th, 2010 at 10:58 am

    Great analysis, Tim, as usual. You are absolutely correct that there is a large cohort of mortgagors who would love to refinance into a lower rate, but can’t do so because they are underwater. That won’t change any time soon.

    Buying activity is down, unusually so for this time of year, because people have lost their jobs; or have lost or expect to lose overtime pay, bonus, or commission pay; or have a fear that their job or employer may be at risk for downsizing; or they can’t sell their current house. So purchase money mortgage applications are way down.

    Add to that the fact that such a high percentage of sales are short sales, which complicates and lengthens the process, and often can lead to the sale falling apart. I suspect that situation will not abate in the near future, either.

    It seems as though the people who are in a position to take advantage of these historically low interest rates are those who are already in a good position, mortgage rate-wise and employment-wise. So it’s a case of the well off getting more well off, which is fine. But it won’t drive the engine of the real estate marketplace very far.

  4. Hugh Says: July 20th, 2010 at 7:48 pm

    We have two very low rate loans right now (one fixed and one adjustable), but these record low rates are the reason why we are locking in at a lower rate and start making principal payments to our HELOC (4 year university $$ for daughter, cars, home repairs, etc).

    New loan: 15 year, fixed 3.75%, 0.75 points, Lender is a Community Credit Union, we have excellent credit scores and employment history.

    Old mortgage loan: 8 years left on a 15 year, fixed 4.875% balance $136K

    Problem area…HELOC loan: 3.25% adjustable HELOC with $113K balance.

  5. Tim Manni Says: July 21st, 2010 at 8:36 am

    Thanks Steve!

    Since you’re a mortgage professional, maybe you could give readers your opinion of what exactly will drive the housing market. What needs to improve, what needs to change to get the market rolling once more?


  6. Steve Says: July 21st, 2010 at 3:08 pm


    The answer to that is one word: JOBS. I have maintained all year that the most important economic statistic by far is the unemployment rate. Unless and until that number declines, I don’t see the housing market heating up.

    That’s just my opinion.

  7. Tim Manni Says: July 22nd, 2010 at 8:56 am


    Thanks so much for getting back to us. Your opinions are always welcome!

    Anybody disagree with Steve?


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Tim Manni is the Managing Editor of and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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