Low Rates = Fewer Mortgage Apps?

With rates still low, why are mortgage applications falling?

Here's the short answer: The unemployment rate, which isn't falling.

Despite the extension of the government's special tax credit for new home buyers, and the fact that interest rates on 30 year fixed-rate mortgages remain at rock bottom (averaging 5.02 percent last week vs. 5 percent a week earlier), applications for all home loans actually fell last week by almost 11 percent, according to the Mortgage Bankers Association.

Refinancings have been especially hard hit. While loans for buying a new home, adjusted for seasonal variables, were down 3.3% from the prior week, applications for refinancing existing mortgages plummeted slightly more than 15%.

"Although rates remain low, there appears to be a smaller pool of borrowers who are willing and able to refinance," says Michael Fratantoni, the association's vice president of research.

Which brings me back to employment, or the lack thereof.

The dismal unemployment picture is still spooking potential home buyers. The nation's unemployment rate remains high; some states have even experienced an increase in the last couple of months. While the pace of job losses overall has slackened off, employers have not exactly shown a willingness to add jobs in a meaningful way.

No wonder people are not flocking to buy new homes. Job insecurity, or not having a job at all, is a powerful force working against a housing market recovery.

But why is refinancing in particular, as The LA Times puts it, "apparently running out of steam?"

Well, the country is running out of homeowners who, even at the low rates available, have both good credit and the ability to pony up a 15-to-20 percent down payment, a combo lending institutions often want for a refinance. Moreover, it seems Americans might finally be more interested in paying down their mortgage debt than piling it on.

No matter what you look at, and no matter how you look at it, jobs! jobs! jobs! is what this is mostly about. End of story.

Charles Feldman is a journalist, media consultant and co-author of the book, No Time To Think-The Menace of Media Speed and the 24-hour News Cycle.

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