A week away from the housing market has given me a slightly new perspective, and not a better one. I was beginning to buy the argument that a drastically lower mortgage interest rate would be the jumpstart the market needs. The initial readings don’t seem to support that theory.
Two weeks ago, thanks to more promises from the federal government that it would buy more mortgage-backed securities, mortgage rates plunged to the point where the rate on the 30-year fixed looked like a teaser rate on a subprime circa 2006. It wasn’t quite the 4.5 percent that some housing gurus are calling for, but it was close enough.
One week later, no surprise, the weekly applications survey from the Mortgage Bankers Association showed a surge with volume up 48 percent from the week before and up 124.6 percent from the same week a year ago. Great news, right? Only if you’re into refis.
The refinance share of mortgage activity increased to 83 percent of total applications, from 77 percent the week before and 53 percent a year ago. So that means that the vast majority of people taking advantage of these low low rates are not actually buying a new home, just saving money on their current home. That’s helpful to those who might have been in danger of default, but it isn’t exactly a jumpstart to home buying.
So suffice it to say, it’s going to take more than low interest rates to get people buying enough homes to add more weight to any kind of recovery. I’m not sure what that more is, but I hope the incoming administration takes note of the initial results of low interest rates: still low interest among potential buyers.
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