Home refinancing applications drop as interest rates rise
Brightening economic signs are pushing interest rates higher, choking off a surge in home refinancing at the same time that buyers are showing more willingness to purchase houses at today’s beaten-down prices.
FOR THE RECORD:
Mortgage rates: An article in the Dec. 3 Business section about refinancing activity for home loans attributed a survey of mortgage rates to Fannie Mae. The rates were actually released by Freddie Mac. —
Fannie Mae said Thursday that the typical rate mortgage lenders were offering on 30-year fixed loans was 4.46% this week, up from last month’s record low of 4.17%. The Mortgage Bankers Assn., which includes higher-interest jumbo loans in its survey, said the average 30-year contract rate now topped 4.5%.
That helped to explain why applications to refinance homes, as opposed to buying them, dropped below 75% of all mortgage applications last week for the first time since June.
“Rates above 4.5% are certainly high enough to curtail activity,” said Mortgage Bankers Assn. economist Michael Fratantoni.
The refinancing activity would have dropped still lower if not for homeowners scrambling to refinance before rates spiraled higher still, Fratantoni said.
Current rates are still extremely low, especially in comparison with an average rate of 6% over the last 10 years — not to mention that money cost well into double digits in the early 1980s. And some signs indicate that increasing numbers of home buyers are overcoming concerns over the sour job market and are taking advantage of the rates.
Analysts expressed surprise Thursday over a National Assn. of Realtors report showing that signed contracts to buy previously owned homes jumped by 10.4% in October. It was the third monthly gain since such signings hit a decade low after home-buyer tax credits expired last spring and was “the first piece of good news on the housing market for some weeks,” as Paul Dales of Capital Economics put it.
Contract signings were up in every region of the country except the West, reflecting the exaggerated boom-and-bust cycle in states like California and Nevada.
Laguna Niguel mortgage broker Jeff Lazerson said purchase applications remain sluggish here because so many people lack confidence in job stability.
“The irony is we are at the very bottom for prices and near bottom for rates,” he said. “Folks should be buying as many properties as they can right now.”
The Realtors report showing higher pending home resales nationally contrasts with sales of new homes, which remain “lousy,” said real estate analyst Mike Larson of Weiss Research Inc., who described the markets as stabilizing although not in vigorous recovery.
“The used-home market continues to capture the imagination of buyers,” Larson said. “They’re seeking out the best values, and right now, that means distressed used homes at attractive — even fire-sale — prices.”
The percentage of loan applications that were for refinancing jumped above 80% in early August and, except for one week in October, remained there until the Mortgage Bankers Assn. report for the week that ended Nov. 19.
Only once before in recent years had applications for refinancing broken the 80% barrier, Fratantoni of the Mortgage Bankers Assn. said: in 2003, for one week, when the rate on 30-year mortgages fell below 5% for the first time since the 1950s.
In 2003, a boom year for home loans, the total amount of mortgages issued was about $4 trillion, with about $2.5 trillion of that, or 60%, in refinancing. This year, the mortgage trade group projects that refinancing will account for about $1 trillion, or two-thirds, of a total mortgage market of $1.5 trillion.
For 2011, the mortgage-banking group thinks home loans will total about $1 trillion. Purchase loans are expected to increase a bit, to $600 billion of the total, with loan refinancing at $400 billion, or 40%, Fratantoni said, as rates rise above 5% by the end of the year.
Of course, refinancing is restrained by more than just rising rates these days. A lot of people who would like to refinance can’t, because their home equity or income has been reduced in the downturn, said Chris George, president of CMG Mortgage in San Ramon.
What’s more, people with equity remaining also are far less likely to refinance these days to pull out cash for home improvements or other investments, George said.
“In ’04, ’05 and ’06 it was all about leveraging your home equity.… I would say back then three-quarters or better of the people refinancing were pulling out cash,” George said. “Now it’s the opposite — people are de-leveraging, saving for a rainy day.”