Refinance Mortgage Applications Drop

April 09th, 2010

Mortgage markets are topsy-turvy as the Fed stops buying mortgages, positive and negative economic data is released, and home buyers return. Rates are in a state of flux between lack of demand for mortgage-backed securities, possible economic recovery, and foreign money problems.

Here’s the roundup of major news that affects mortgage rates for your refinance mortgage or purchase mortgage.

Weekly Mortgage Application Survey

The Mortgage Bankers Association released its Weekly Application Survey for the week ending April 2, 2010. The survey showed that mortgage applications dropped 10.5% for the week due to a decline in refinance mortgage applications. While purchase mortgage applications for the week increased a scant 0.5%, refinance mortgage applications dropped almost 17% for the week and made up 58.7% of all mortgage applications. This is the lowest level of refinance mortgage applications as a percentage of total loan applications since August 2009.

Also in the survey is the weekly mortgage rate summary for mortgage lenders nationwide. The average mortgage rate for a 30-year fixed-rate mortgage (assuming a purchase with 20% down) was 5.31%, up from the prior week’s average mortgage rate of 5.04%. While the average number of points paid declined to 0.64% from 1.07%, the decline in cost did not make up for the significant hike in rates. The primary contributing factor to the climb in rates was the exit from the mortgage purchasing market by the Federal Reserve on March 31.

The link between the increase in mortgage rates and the decline in refinance mortgage applications is very direct, as both reached levels not seen since August 2009.

Pending Home Sales Jump

The National Association of Realtors released data showing that pending sales of existing homes jumped significantly in February. After a steep decline in January, pending homes sales increased 8.2% in February. The consensus had been that pending home sales would decline in February as a result of continued inclement weather and the data from the Weekly Application Surveys for the month; the news of an increase was a bit of a shock to the markets and added to other pressures pushing mortgage rates up early in the week.

Jobless Claims Rise

After several weeks of declines, the number of Americans making initial filings for unemployment insurance rose, with 18,000 more filings taking place than the prior week. The total number filing for the week stood at 460,000. This news put some brakes on the increase in mortgage rates. As long as the number of unemployed Americans increases or stays flat at over 11 million out of work or underemployed, recovery for the entire economy and for the housing markets will be delayed or prolonged.

Further, the rebound in housing prices seen in many regions of the country will be difficult to maintain if more homes enter foreclosure as a result of job losses. Demand for home purchases also drops in poor economic times, resulting in fewer purchase mortgage applications.

Greece Is the Word

If you need any proof that we are heavily involved in a global economy, look to the recent financial troubles of Greece. For several months, Greece’s economy has been in extreme peril; its national debt is tremendous, and the government has had difficulties making debt payments. Essentially, the nation is in or extremely close to default.

As a member of the European Union, Greece has sought assistance from other member nations, which to this point have talked a lot but not thrown Greece any lifelines for fear of being pulled down themselves. The financial turmoil of the Greeks has played out in American equity and bond markets, as investors have moved their investments around to best protect themselves should Greece fail and pull other European nations down with it. This has created a rundown in stock prices and a run-up in bond sales–which has placed downward pressure on mortgage rates.

While there has been a rebound in mortgage rates the past few days as a result of the Greek crisis, jobless claims, and other poor economic news, the overall expectation for rates in the next months is that they will increase. If you are considering refinancing your home or making a new home purchase in the near future and are waiting to time the bottom of the market, stay on top of national and international economic news. While there are small fluctuations daily in mortgage rates, it will be the longer-term trends of weekly rates that will show you if you will manage to be one of the few who hit the bottom or if you are waiting for a bottom that has already come and gone.

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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