Down: rates, sales, Bernanke. How down helps you

July 23rd, 2010

Shopping for low mortgage rates? Using refinance calculators to determine your savings with those low mortgage rates? This week’s economic data is good news for you. From Fed Chief Ben Bernanke’s comments to Congress to releases by the MBA, NAR and Freddie Mac the past week has seen no news to indicate an end to low rates.

Existing home sales

For those who have followed the Weekly Applications Survey from the Mortgage Bankers Association, the release yesterday on existing home sales from the National Association of Realtors was no surprise. Home sales in June dropped 5.1 percent from May, marking the second month in a row that home sales have declined. The April 30th deadline to enter sales contracts to be eligible for the home buyer tax credit is the primary cause for the May and June declines in sales. Despite the two month drop in sales home values have remained constant, nationally up 1 percent from a year ago with the median price now $183,700.

Of concern looking forward is the inventory currently listed. There is an almost nine month supply of homes on the market according to the NAR. Lawrence Yun, chief economist for NAR indicates that inventories could be increasing, “Pending contracts suggest that in the upcoming months inventories will surpass 10 months.” Should inventories hold at that level for three months, Yun indicates that could lead to a decline in home values.

Using the pre-qualification calculator to determine your purchasing power for a new home? The current market favors your timing as a large inventory and stable prices offer you plenty of options and the continuing low rates benefits your affordability.

Refinances and purchases boost loan apps

The Weekly Mortgage Applications Survey released by the Mortgage Bankers Association saw an increase in the total mortgage application index of 7.6 percent for the week ending July 16, 2010. The increase was boosted by both refinance applications, up 8.6 percent and purchase applications, up 3.4 percent. The increase in purchase applications was due almost solely to an 8 percent increase in government applications from the prior week. With the low mortgage rates and low down payment requirements for government mortgages, more Americans are finding themselves able to afford and qualify to become home buyers.

Plugging current mortgage information and low market mortgage rates into refinance calculators is not an unusual activity these days. Refinance mortgage applications were almost 80 percent of the total application volume in the MBA survey, led by a 10.7 percent increase in conventional applications.

Lower rates and economic outlook

This week Federal Reserve Chairman Ben Bernanke spent two days being questioned in Congressional committees. Restating, perhaps with some different language, what he has been saying publicly for the past few weeks, Bernanke told members of Congress that the outlook for the economy is “somewhat weaker” and there exists “unusual uncertainty” about the future of the economy. Investors and markets loathe little more than they loathe uncertainty. When there is uncertainty in a market participants pull back and weaken the market, a self-fulfilling prophecy. When the head of the Federal Reserve states there is uncertainty that is a sign that interest rates will benefit.

Further benefiting interest rates has been the continuing high unemployment situation. This week 464,000 individuals filed for first time unemployment insurance, up 37,000 from the prior week. Bernanke has indicated that the Fed is watching the jobs numbers very closely, until employment improves the Fed will keep rates low.

Supporting the economic theories of consumer confidence and jobs driving investment, Freddie Mac released its Weekly Primary Mortgage Market Survey and the national average for 30 year fixed rate conventional mortgages is at 4.56 percent at a cost of 0.7 origination points. This is a decline of 0.1 percent from the prior week.

Looking ahead mortgage rates continue to stay very low. Uncertainty is ahead for the mortgage industry as President Obama signed the massive financial reform bill into law and policy this week. It will take some time for the various regulatory agencies and lenders to digest the legislation and its impact. As the legislation is interpreted new rules and guidelines will come to market in the form of new underwriting guidelines, disclosures and removal of some programs. In the meantime now is a great time to complete your refinance or purchase application and take advantage of the low mortgage rates.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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