Rates head south again

From Our Friends @ Lincoln Mortgage

Friday, January 8, 2010

Rates head south again

By Holden Lewis • Bankrate.com

Even though mortgage rates are low, few people are refinancing their home loans and hardly anyone is buying a home.

The benchmark 30-year fixed-rate mortgage fell 7 basis points, to 5.26 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.43 discount and origination points. One year ago, the mortgage index was 5.33 percent; four weeks ago, it was 5.04 percent.

The benchmark 15-year fixed-rate mortgage fell 6 basis points, to 4.67 percent. The benchmark 5/1 adjustable-rate mortgage fell 3 basis points, to 4.74 percent.

This would seem to be a good time to get a loan. Mortgage rates are low, and lenders don't have much work to do right now, which presumably means they have time to deliver good customer service.

Weekly national mortgage survey

There are at least two reasons mortgage lending is in the doldrums. One is seasonal. Mid-December to early January is the slowest slot on the calendar because people are spending their time doing other things: shopping in December, and joining gyms in January so they'll have resolutions to break.

Another reason can be deduced by the timing of this drop-off in mortgage applications: The swoon began in early October. Since the first week of October, purchase mortgage applications have fallen 41 percent. According to the Calculated Risk blog, purchase applications are at a 12-year low.

Something else was happening in early October: People were rushing to take advantage of the first-time homebuyer tax credit, which originally had been set to expire at the end of November. Buyers had to get their mortgage applications in by mid-October to ensure that they would be able to close on their home purchases in time to claim the tax credit.

In an interview in November, the National Association of Realtors' chief economist said that the influx of first-time buyers had affected the housing market. Specifically, NAR economist Lawrence Yun said that the median house price fell in October because so many first-time buyers had entered the market. They tended to buy more inexpensive houses, so they dragged down the median price.

Back in October, the question was whether the first-time homebuyer tax credit was distorting the housing market by persuading people to buy homes in 2009 when they otherwise would have bought in 2010. Yun didn't think a lot of 2010 sales were being pulled into 2009. He might yet turn out to be correct. But with a 41 percent drop in mortgage applications since October, that would take quite a turnaround.