Real Estate

Lower rates don't boost mortgage applications

Behind the mortgage numbers

Mortgage rates have hit their lowest levels since November, but it is still not enough to entice people to apply for loans to buy homes.

While the lower rates did push mortgage applications to refinance higher by 4 percent last week from the previous week, they did nothing to push potential home buyers into the market. Applications to purchase a home fell 3 percent week to week and are now nearly 12 percent lower than a year ago.

"Rates on conforming loans hit six month lows and jumbo rates hit 12 month lows," said Mike Fratantoni, chief economist for the Mortgage Bankers Association. "Refinance volume picked up somewhat as a result, but it still remains more than 65 percent below last year's pace."

Meanwhile, rates continued lower, after another week of economic uncertainty in Europe and weak data at home. Investors fleeing to the safety of the bond market pushed yields lower, and mortgage rates loosely follow those yields. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.33 percent, the lowest rate since November, from 4.39 percent the previous week, according to the Mortgage Bankers Association.

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Weeks of lackluster purchase applications in the face of lower rates would seem to indicate that it's not rates but overall affordability and access to credit that is hampering home buyers. Continued high levels of negative and near-negative equity are also to blame for fewer sellers, and thereby fewer closed sales.

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Mortgage rates are hovering around these latest lows, but haven't made any dramatic moves, which is uncommon.

"Normally, when we have a quick move to recent highs or recent lows, rates will continue in the same direction or reverse course with a bigger correction," according to Matthew Graham of Mortgage News Daily. "This time around, however, they continue to bide their time without giving any clear signals about their next move."

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So should borrowers lock in now? It might seem the longer we go without a new move lower, the riskier it is to wait

"On the other hand, we haven't seen a sense of urgency for rates to move back higher, and until we do, floating for small gains can pay off as long as you're committed to lock if markets force your hand," Graham added.

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