Despite falling interest rates, some consumers are still hesitant to buy a home.
For the second week in a row, mortgages to purchase properties fell despite interest rates falling. According to a survey by the Mortgage Bankers Association, mortgage interest rates fell from 4.90 percent to 4.83 percent for a 30-year fixed-rate purchase loan with a 20 percent down payment.
Even with more economists and mortgage watchers calling for rates to begin increasing soon, purchase applications fell a seasonally adjusted 7.9 percent last week from the previous week. Last week’s drop was modest compared to the 11.7 percent fall the week before. The 15-year fixed-rate (4.32 percent) and one-year adjustable rate mortgages (6.82 percent) remained relatively the same from the prior week.
Tax credit uncertainty
The lag could be attributed to the uncertainty of the home buyers tax credit, which was extended and expanded two weeks ago. If the extended credit begins to contribute to home purchases, an uptick in mortgage applications should soon begin to show.
Overall, mortgage applications fell 2.5 percent, buoyed by refinance applications. Refinances took a 72.9 percent share of all loan apps last week. But rates have been so low for so long, one has to wonder if the market is beginning to run out of qualified homeowners who want to refinance. With near unanimous opinion that rates will begin rising and likely continue going up all of next year, it’s likely even fewer homeowners will look to refinance.
“I don’t think the market will stay this low for many more months,” Denis Salamone, COO of Hudson City Bancorp, the nation’s largest thrift, told Reuters News Agency. Salamone says he thinks rates will rise once the Federal Reserve begins its scheduled cutback this spring on the purchase of mortgage-backed securities.
The biggest problem is the bottleneck above entry-level home purchases. First-time buyers are flocking to the market because of pent-up demand, mortgage rates at historic lows and the buyers tax credit. But the move-up markets are basically dormant.
Most economists agree that the double-digit national unemployment rate is keeping move-up buyers home. That, and they may not be able to psychologically handle selling their home so far below its previous high.—Rick Hazeltine