The mortgage bankers association published their weekly mortgage applications survey today and the data was not what you may think.
The good news is that refinance applications surged 62.6% from last week as the 30-year fixed rate mortgage dropped from 5.18% to 5.04%. Not much of a surprise here as 5% is really cheap mortgage money. And the benefit for the broader economy is that as home owners lower their debt service on their home, they in theory will have more disposable income to spend or invest - which is a good thing. It is a bottom up approach to stimulating the economy which I am an advocate for - although the methods for accomplishing this are a little unconventional.
The "disappointing" news is that purchase mortgage applications are up only 10.6% for the week. I say only because what this means is that lower mortgages rates are not going to be enough on their own to stimulate aggressive demand for housing which is something the housing market desperately needs; especially considering that existing home sales dropped -8.6% from last month on a seasonally adjusted basis and -10.6% from last year.
The four week moving average for purchase applications is even more anemic as they are up only 4.5%, compared to refinances at 42%, since the 30-year fixed has plunged. The problem with lower mortgage rates is that they are not stimulating demand for real estate so that we can absorb the excess supply of homes.
As I have advocated before, rather than the Fed "investing" billions into the mortgage market in the "hopes" that it will stimulate demand for housing, what the government needs to be doing is providing tax incentives for those who actually do invest. This housing crisis is not about affordability, plenty of people can afford to buy a home and invest in real estate, what is missing is the motivation to do so, the cost/benefit. As prices continue to fall, and as sales decline, as they are at a record pace, confidence in the housing market will continue to erode.
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