Are
we headed back into a refinance boom?
Is
the decline in mortgage rates a good thing for the housing market?
The answer to the first question
may certainly be a “Yes”. However the
answer to the second question regarding it being a good thing for the housing
market…the answer is “not necessarily”.
Mortgage rates have been tumbling
over the last week and mortgage rates have hit new lows for 2014. In fact mortgage rates currently are about at
the same level as October of last year.
Applications for refinances jumped in the prior week by 7.0 percent
according to the Mortgage Bankers Association.
Expectations are that refinance applications will rise again in next
week’s MBA report because mortgage rates declined further this current week and
that drop is not reflected in the current spike in refinance applications.
On the flip side, applications for
purchase applications declined by 1.0 percent during the same period of
declining mortgage rates Logic would suggest that if the cost of
borrowing mortgage money is lower, housing should pick up. Unfortunately that does not seem to be the
case as the decline in rates is due to great uncertainty in the stock markets
about future economic growth.
Concern about the housing market
along with the overall health of the economy has investors very concerned on
many levels. The stock market has been
on a tear upward over the last few months with new records being achieved. Now investors are pulling their money out of
the stock market and placing it in the bond market which has sent the stock
market tumbling this week. Money flowing
into the bond market always lowers mortgage rates.
For the second question I posed in
the beginning of this article regarding declining rates and the housing market,
this may not be a good thing for housing.
When mortgage rates decline due to economic uncertainty, more potential
home buyers will not take action because of fear regarding employment. Although there has not been any signs of
employment slowing presently, according to the labor department, corporate
profits in this first quarter along with GDP and industrial production were far
below expectations. The signs of a
possible slowing economy may ultimately lead to uncertainty in the labor
markets which then keeps potential home buyers on the sidelines. (We have seen
this before)
I cannot predict the future
regarding housing nor will I try.
Anything can happen in the coming months and we need to hope that
investor and employment uncertainty calm down so the markets do not continue to
act in what appears to be a panic mode more than anything else. My gut tells me this is just a temporary
occurrence and things will stabilize in the coming weeks.
JJ Mack
916-517-1800x300
jj.mack@apmortgage.com
www.apmcroseville.com
