The Mortgage Bankers Association announced on Wednesday that the 30-year fixed rate mortgage surged to 5.57% from the previous week at 5.25%. This is the highest rate for the weekly survey since the week of November 26th of 2008 when the 30-year was at 5.99%.
What is interesting is that despite the 30-year fixed rising nearly a full percentage point over the past month, the demand for mortgage purchase applications has not been impacted. And the reason purchase applications have not been impacted is because there was never a bounce when rates plunged to historic lows, housing affordability was already the highest on record. The Fed was trying to beat a dead horse, and in the process they have printed $1.25 trillion by buying up mortgage backed securities.
What we are seeing is that when rates are below 6%, there is very little price elasticity. In other words, plunging rates lower does not necessarily increase demand. This is a concept that I wrote a post about in January in response to NAR's Chief Economist, (ranked fifth by the USA Today for accuracy in economic forecasting) Lawrence Yun's statement when he said, "NAR doesn't take a position on how low interest rates should go, but for every 1 percent buydown in interest rates, we would see a half-million additional home sales over a one-year period."
No kidding.
How is that theory working out for you?
Here is a comparison between NAR's seasonally adjusted existing home sales and Freddie Mac's 30-year fixed rate mortgage survey over the past several months:
Sep 2008: 5.10 million sales / 6.04%
Oct 2008: 4.94 million sales / 6.20%
Nov 2008: 4.54 million sales / 6.09%
Dec 2008: 4.74 million sales / 5.29%
Jan 2009: 4.49 million sales / 5.05%
Feb 2009: 4.71 million sales / 5.13%
Mar 2009: 4.55 million sales / 5.00%
Apr 2009: 4.68 million sales / 4.81%
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