Slight increases in mortgage rates in recent weeks have led to a drop in refinancing activity. The Mortgage Bankers Association reported in its weekly survey that for the week ending August 17th, 2012 mortgage applications were down 7.4 percent when compared to the previous week. The decrease is largely due to fewer homeowners refinancing existing mortgage loans.
Purchase mortgage activity was less affected by the small rise in interest rates, and the seasonally adjusted Purchase Index (which measures the volume of loan applications) dropped only 0.9 percent from the week before, compared to an 8 percent drop in the Refinance Index.
More and more potential home buyers are recognizing that real estate remains incredibly affordable both due to low prices following the housing meltdown, and the incredibly low cost of financing. The recent mortgage rate increases have only brought us to what was a record low as recently as the first week in July. (According to the Weekly Primary Mortgage Market Survey(R) from Freddie Mac 30 year fixed mortgage rates were an average of 3.62% (0.6 points) the week ending August 16, 2012 and 3.62% (0.8 points) the week ending July 5, 2012.)
One of my collegues spoke to a North Carolina home shopper who is waiting to hear the results of an offer on a short sale condo property and was concerned that she kept hearing rates were rising. Her mind was set at ease when she realized if she locked in today her monthly payment would be only $12 higher than if she had snagged the record low rate a few weeks ago. Still, she's anxious to learn whether her offer was accepted!
She's clearly not alone in thinking this might be the right time to buy a home. Sales of existing homes were up 2.3 percent in July 2012 when compared to June, an increase of 10.4 percent over July 2011, according to a August 22nd report from the National Association of Realtors(R).
In addition to home affordability, increased confidence in the strength of the housing market and the overall economy seems to be spurring on interest in home buying. Consumer confidence was up slightly in July, according to The Conference Board Consumer Confidence Index(R) which showed consumers are feeling more optimistic about "short-term business and employment prospects." However, they were feeling less positive about their earnings. The sense for those who are employed that their jobs are more stable than they've been, but that salaries are unlikely to increase any time soon could provide even greater incentive to snap up real estate bargains while they are still available, and lock in an ultra-low mortgage payment for the foreseeable future.