Mortgage Applications Decline, but Uptrend Remains Intact
The Mortgage Bankers Association just released its weekly data dump, showing a downtick in mortgage applications. “Raw mortgage application activity slid 18.1% in the week ending April 24…The four-week moving average fell 4.9% after remaining up 0.3% the previous week…The volume of applications for refinance plummeted 21.9% while the…refi share of total mortgage applications fell to 75.3% from 79.7% the previous week.” [Chart courtesy of WSJ].
On the surface, it conveys a precipitous drop, and the numbers wouldn’t look out of place in any article on the ongoing housing bust and economic recession. But actually, the weekly decline contradicts the upward trend in mortgage applications that began in late 2008. “The MAX’s [another industry association] virtually static results from the week, combined with the MBA’s dive in raw activity, suggests interest by number of households remains unchanged.”
As reported yesterday, mortgage rates remain near record lows, so application volume should remain strong: “The average interest rate for 30-year fixed-rate mortgages fell to 4.62 percent from 4.73 percent, with points increasing to 1.14 from 1.12.”
As the data suggests, a large portion of the mortgage activity corresponds to re-financings. CNN reports that “While the keenly watched spring sales season should entice more potential buyers to deeply discounted prices, refinancing is expected to continue to dominate mortgage demand.” This is hardly surprising, given that banks are still highly risk-averse as a result of the sub-prime fiasco, despite the government’s best efforts to stimulate mortgage lending; “The government has rolled out a series of programs in recent months to lower mortgage rates and boost the struggling housing market. The Federal Reserve in November announced plans to buy mortgage-backed securities, while the Obama administration has rolled out programs to encourage strapped homeowners to refinance.”
Furthermore, given the tightening of lending standards, it’s likely that a smaller portion of mortgage applications are ultimately approved. Combined with the fact that the overwhelming majority of new mortgages pertain to re-financings, it’s not clear whether the increase in applications will trickle down and boost home prices.
As far as the economy is concerned, “Any boost to consumer spending is likely to be small. Even if about $1.5 trillion of mortgages are refinanced in the next year, with an average reset of about one percentage point, that would amount to just $15 billion a year, a tiny share of overall consumer spending.”
Depending on your specific circumstances, it might be a good time to refinance. Based on anecdotal evidence, it’s more difficult/time-consuming than during the last few years, when rates were also relatively low and the approval process required only a few days. In addition, a lower rate doesn’t inherently justify a refinancing. It’s important to weigh the fees, for example, against any direct savings from lower monthly payments.