The Mortgage Bankers Association said Wednesday that the number of applications for home loans fell nearly 19 percent in the week ending June 26 from the previous week, as demand for mortgages dropped to seven-month lows. Refinancing applications plunged 30 percent from a week earlier.
The number of people applying for mortgages--especially to refinance--has been hammered by the recent sell off in the Treasury market, which sent fixed mortgage rates screaming towards 6 percent. But what's interesting about the most-recent dip in mortgage applications is that it comes even as mortgage rates move modestly lower. Thirty-year, fixed mortgage rates hit 5.57 percent during the week of June 12, but have since fallen steadily, reaching 5.34 percent in the most recent report.
So why haven't lower-trending mortgage rates stabilized the slide in applications? Mike Larson of Weiss Research offers his explanation in a report:
This fits with what I've been telling various questioners: While 30-year rates in the mid-5s are low on a LONG-TERM historical basis, they're not very low relative to the last five or six years. The average since mid-2003 (when we had the last mega-boom in refis) is 6%, according to Freddie Mac. So the universe of mortgages that can be refinanced on a "rate and term" basis isn't very large in the mid-5s…
We're going to need to see rates head back into the 4s to get the mortgage train rolling again. That's unlikely to happen unless the economy deteriorates sharply, nascent inflation concerns cool, and/or the government regains control of its out-of-control finances (something that would help attract investors to long-term bonds again). That's a tall order, from where I sit.