Weekly mortgage applications fall despite low rates

Pedestrians pass a sign advertising mortgages at a Citibank branch in New York.
Scott Mlyn | CNBC
Pedestrians pass a sign advertising mortgages at a Citibank branch in New York.

Mortgage rates dropped last week to their lowest level since May 2013, when the "Taper Tantrum" began, but home buyers today are not reacting.

Total mortgage application volume decreased 3.3 percent on a seasonally adjusted basis last week from the previous week, according to the Mortgage Bankers Association. Applications to refinance remained unchanged, but applications for loans to purchase a home fell 7 percent and are now 5 percent lower than a year ago.

"Amid plummeting oil prices and heightened concerns regarding global economic growth, interest rates dropped sharply through the course of the week, with longer-term Treasury yields falling more than 10 basis points," said Mike Fratantoni, the association's chief economist.

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The average contract interest rate for 30-year fixed-rate conforming loan balances ($417,000 or less) decreased to 4.06 percent, the lowest level since May 2013, from 4.11 percent the previous week, according to the association.

Rates continued to drop Tuesday, as Treasury yields dipped even lower amid concerns over the value of Russia's currency. For several lenders, rate sheets were almost identical to those seen on May 22, 2013, when the Federal Reserve announced it would "taper" its purchases of mortgage-backed securities

"That's significant because 5/22/2013 was arguably the first day of the 'Taper Tantrum,' and clearly marked a major shift higher in rates," noted Matthew Graham of Mortgage News Daily. "In other words, we've essentially erased the Taper Tantrum losses in mortgage rates."

He also pointed out that this drop is occurring in a post-quantitative easing era, meaning that whatever Federal Reserve Chair Janet Yellen announces Wednesday afternoon, it's unlikely to move rates dramatically in either direction. The Fed is expected to begin raising rates next year.

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Right now interest rates are far more sensitive to global economic concerns, of which there are many. Rates are more likely to rise slowly over the course of the next year, but they could fall even further before doing so.

What is concerning in this report is that more home buyers are not taking advantage of these lower rates. It points to the fact that it is not the rate driving the housing market today, but the availability of credit and the financial wherewithal of buyers to afford both the down-payment and the sticker price of today's properties.