Mortgage Rates Fall To All Time New Lows
Posted By thestatedtruth.com on July 8, 2010
Now all you have to do is qualify!
Today, Freddie Mac announced that the 30 Year FRM declined to a new all time record low, dropping by 1 bp to 4.57% from the week before. Yet even as mortgage rates hit fresh weekly records courtesy of the Fed’s undisputed control of the mortgage market, the only thing increasingly more certain is that even at 0.00% there is precious little marginal demand in the primary market for housing. Here are the latest observations from Rosie on precisely this phenomenon, and much more.
Just to show what little effect it is having, refinancing activity in the U.S. is still some 40% lower than it was the last time we had a major rally in the bond market in late 2008 and early 2009. In fact, coming out of the 1990-91 recession and the 2001 recession, the YoY trend in mortgage refinancing was over 1,000%(!), not 157%, just to put this in some perspective. The reason for the anemic growth this time around is because at the historic lows in yields, which we saw a year and half ago, just about everyone who could at the time managed to refinance, so today’s rally does them little good. Plus, with one in four mortgage debtors “upside downâ€, they don’t have the ability to refinance. But every penny counts, and the bond market is doing the best it can to get things going.
If there is a disturbing development, it is the lack of response on the part of potential homebuyers to the downdraft in mortgage rates. Demand remains anemic, and perhaps this reflects an aversion to taking on debt, and an aversion to buying a depreciating asset. Or perhaps it reflects the allure of landlords dropping their apartment rents and thereby upsetting the rent-buy decision balance. Maybe the White House should embark on a strategy of forcing landlords to hike their rents in a quest to revive the homeownership rate — it’s not as if this group doesn’t believe in government intrusion into the economy.
So, for the third week in a row, and despite a 13bp bond-induced decline in mortgage rates, applications for new purchases fell (by 2%) and are down 35% from year-ago levels; and those year-ago levels were already down 12%. So, after plunging 18% in May and then by 15% in June, mortgage apps for new home purchases are already down 3.4% so far in July. Clearly, as far as the Treasury market is concerned, more needs to be done — and since Mr. Bernanke is done cutting rates, it will be up to Mr. Bond to carry the ball, and likely a little further.
We are seeing first-hand how the economy operates when the policy stimulus are taken away — for example, a 0.8% annualized growth rate in real final sales as we saw in the first quarter. Don’t think for a second that we are going to see an upturn without some major exogenous shock. If it’s not the Fed or more fiscal spending, then it will have to be China (wasn’t it the world’s saviour in late 2008? Can it turn a blind eye to its credit and property bubble at the same time?), the ECB (will more ease peeve off the Germans?) or perhaps a payroll tax holiday in the U.S.A. (likely a better idea than turning the economy into a welfare state) or anything that will lift this cloud of uncertainty over the small business sector in particular (but is it too late to make any changes to the health care overhaul?).
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