Summary
This week we saw residential mortgage rates fall even lower for almost all loan programs. However, the question needs to be asked..Does it really matter at this point in time. If rates dropped into the 300 basis point range would there be a rush by the public to buy new or exiting housing stock?
Analysis
This week we saw residential mortgage rates fall even lower for almost all loan programs. However, the question needs to be asked..Does it really matter at this point in time. If rates dropped into the 300 basis point range would there be a rush by the public to buy new or exiting housing stock? My sense is that nothing, at this point would happen. You would see an increase in refinances which is what we see proping up the indistry at this point. My guess is that the Fed is testing where the low water mark is for mortgage rates and what level would spur on the next rally. Lets look at the current state of mortgage rates now.
The most recent Freddie Mac weekly rate report shows that 30-year fixed-rate mortgages fell to an average 4.82 percent which is down from 4.86 percent last week. As a frame of reference, about a year ago the 30-year mortgage rate was about 6 percent. The long-term fixed rate mortgages are now about at the same level as many adjustable rate mortgages. A one year ARM also averaged 4.82 percent this week. The fact is that long-term fixed-rate mortgage rates have stayed below 5 percent for the past 10 weeks. The U.S. Treasury and the Federal Reserve have taken massive steps to keep interest rates low through security purchases. Freddie Mac's chief economist Frank Nothaft said that the treasury purchased $136 billion in mortgage-backed securities through April and the Fed bought $740 billion through mid-May. The Federal Reserve has also purchased $115 billion in Treasury bonds since March.
The Nationsl Association of Homebuilders says its member have increased their confidence level in May despite a drop in housing starts. The decline in construction was led primarily by a continued drop in condo and apartment construction. The Mortgage Bankers Association also reported this week a continued rise in mortgage applications, led by refinancing activity. However, mortgage applications for refinancing existing mortgages account for a massive 74 percent of all mortgage applications currently in the pipeline. While this is a good sing the real uptick in activity needs to be in new or existing home purchases. Without this activity we are simply treading water.
What will we need to see in the form of typical 30 or 40 year conventional or jumbo mortgage rates before we see any movement in the market? If we are at 4.84 percent now is a 3.99 percent rate the psychological trigger to incite a significant market move? Time will tell but after 10 weeks of rates under 5 percent, which is significant, its clear that this low point is not anywhere near the tipping point we need to see.
