Mortgage Sales Hit Problems

Mortgage rates plunge, but little boost for housing

The 30 year fixed hit a near-low of 4.45 percent last week from 4.57 percent, and the 15 year made a new low of 3.52 percent, according to the Mortgage Bankers Association . Those low rates pushed refinance applications up 7.8 percent and purchase applications up 5.2 percent (both seasonally adjusted).

So are we housing geeks now jumping for joy? All good? Maybe not so much.

"Refinance application volume increased, but even though 30-year mortgage rates are back below 4.5 percent, the refinance index is still almost 30 percent below last year's level. Factors such as negative equity and a weak job market continue to constrain borrowers," notes the MBA's VP of research and economics, Michael Fratantoni . "Purchase activity increased off of a low base, returning to levels of one month ago, but remains weak by historical standards."

So even ridiculously low rates are not exactly boosting the housing recovery; that's because rates have been historically low for a while.

"The problem is not the price of credit," says economist Paul Dales at Capital Economics . "The key issue is that the high unemployment rate, tight credit criteria and high share of homeowners underwater on their mortgage are all keeping a lid on demand regardless of the price of credit. With the economy now weakening once again, these constraints are not going to go away soon."

This is why Dales sees home prices weakening further, and we see that in data today from CoreLogic . Home prices were down 6.8 percent in June year over year, if you include distressed sales (foreclosures and short sales). That is a slightly deeper fall than May's annual number. Without distressed sales, home prices were down 1.1 percent in June annually. That's a bit better than the 2.1 percent annual drop in May. Of course you have to remember that distressed sales make up more than a third of the housing market right now, and far higher percentages in certain local markets.

"The improvement [in home prices month-to-month] is largely due to distressed sales accounting for a smaller share of overall sales," notes Dales. The Realtors reported 30 percent of sales in June were distressed properties, but that share drop is only due to a gain in regular sales, not the actual number of distressed properties decreasing.

So back to where we started, do these lower mortgage rates provide any help to the housing recovery? Perhaps in the refinance area, as some borrowers can get lower monthly payments and lower their risk of default; the trouble with that premise though is that the borrowers who are in real trouble are likely also underwater on their mortgages and unable to qualify for a refi at these low rates. Most people who can do the easy refi already have.

15 Year Mortgage Rates Hit Record Low

Fixed Rate Mortgages (FRM):

Thirty year and the 15 year FRMs plunged to new 2011 lows with the 30 year FRM averaging 4.39 percent with an average of 0.8 points, down from 4.55 percent reported the previous week. The 30 year FRM averaged 4.49 percent a year earlier.

The 15 year FRM set a new historic low averaging 3.54 percent this week with an average 0.7 points, down from 3.66 percent reported the previous week, and down from 3.95 percent a year ago.

Adjustable Rate Mortgages (ARM):

ARM interest rates were mixed in the last week as the 5-year Treasury-indexed hybrid ARM also plunged to a record low averaging 3.18 percent, with an average of 0.6 points, which was down from 3.25 percent the previous week. The 5 year ARM averaged 3.63 percent a year earlier.

The 1-year Treasury-indexed ARM averaged 3.02 percent this week with an average of 0.5 points, up from 2.95 percent the previous week. A year ago, the 1 year ARM averaged 3.55 percent.

Frank Nothaft, vice president and chief economist of Freddie Mac, stated, “Treasury bond yields fell markedly after signs the economy was weaker than what markets had previously thought allowing fixed mortgage rates to follow this week with the 15-year fixed and 5-year ARM setting new historical lows. The economy grew 1.3 percent in the second quarter, which was below the market consensus forecast, and first quarter growth was cut to less than a quarter of what was originally reported. In fact, the first half of this year was the worst six-month period since the economic recovery began in June 2009. Moreover, consumer spending fell 0.2 percent in June, representing the first decline since September 2009.”

“On a positive note, there were indications that the housing market is firming. Real residential fixed investments added growth to the economy in the second quarter after subtracting from growth over the first three months of the year. The CoreLogic® National House Price Index rose for the third straight month in June (not seasonally adjusted) and was the first three-month gain since June 2010. Finally, pending existing home sales rose for a second consecutive month in June and was up nearly 20 percent from June 2010 when the housing tax credits expired,” he added.

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