With mortgage rates down near to historic lows (now 4.57 percent for 30 year fixed), the volume of mortgage loan applications as measured by the Mortgage Bankers Association’s Market Composite Index increased 6.5 percent from June 25 to July 2.
The increase, however, is being driven by applications to refinance.
The Refinance Index increased 9.2 percent from the previous week and is the highest Refinance Index observed in the survey since the week ending May 15, 2009. The seasonally adjusted Purchase Index decreased 2.0 percent from one week earlier. The Purchase Index has decreased eight of the last nine weeks. The unadjusted Purchase Index decreased 2.3 percent compared with the previous week and was 34.7 percent lower than the same week one year ago.
“Mortgage rates remained near record lows last week, as incoming data on the job and housing markets were weaker than anticipated. As more homeowners locked in to these low rates, the level of refinance applications increased to a new 13-month high,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “For the month of June, purchase applications declined almost 15 percent relative to the prior month, and were down more than 30 percent compared to April, the last month in which buyers were eligible for the tax credit.”
The four week moving average for the seasonally adjusted Market Index is up 6.4 percent. Again, driven by refinancing (up 8.3 percent) versus purchase (up 0.1 percent).
∙ U.S. 30-Year Mortgage Rates Decline to Record 4.57% [Bloomberg]
∙ Mortgage Bankers Association Weekly Survey: July 2 [mbaa.org]
∙ Homebuyer Tax Credit Extension For Closing (Not Contract) Date [SocketSite]
This is a giant red flag.
Stimulus programs and tax credits didn’t kickstart housing they just pushed it down the hill. Housing’s engine still hasn’t started and we’re out of gas.
30 year rates were 5.2% a year ago, now 4.6% and purchase applications are DOWN 35%?
I feel like overall I’ve predicted much of this downturn fairly accurately and well in advance. however, I was completely wrong about these mortgage rates.
back in 2007-8 I never would have thought that we would be at historic low mortgage rates today
There are a combination of factors at play here obviously, and it’ll be interesting to see what mortgages do going forward.
I have a 5.125% fixed 30 year mortgage from 2003, and I never thought I’d refinance it. However, there are 30 year fixed mortgages out there with APRs (not APYs) of 4.06 and lower. Amazing.
the only thing holding me back from refinancing is that I am not sure how much lower they will go.
right now the mortgages are so low in part because of the “fear” trade. People are afraid to invest in many different asset classes (stocks, corporate bonds, European sovereign bonds, etc) that they are pouring into treasuries. This has caused a Treasury bubble (which I did not expect to last this long) which has pushed the 10 year yield super low… and the mortgage rates are following. the risk premium between mortgages and 10 year treasury is narrower than it should be since everything is backed explicitly now by Uncle Sam. so all losses will go to Uncle Sam.
the 800 lb gorilla in the room of course is deflation. The bond market has been signalling for some time that we’re in for a doozy. at some point I still think we’ll see the POOM of the ka-POOM theory but that is nowhere near in sight now. (likely years off).
in the end, the government is doing the exact wrong thing. they are funneling tons of money into the banks, but that is just pushing on a string since the banks are just hoarding all their cash to keep their zombie selves alive (causing the “velocity” of money to be slow). they need to get the cash into people’s hands who will spend it.
but our masters don’t like that. they want 100% of the money for themselves to sit in their coffers looking pretty
The “fear” of which ex SF-er speaks is stronger than I expected as well. I thought that when the Fed stopped buying mortgages a few months ago it would cause rates to tick up a bit. But other, bigger problems then sprouted up (Greece, stubborn unemployment, housing doldrums) and the flight to safety followed.
I’ve jumped in. Just started the process on a refi — 15-yr fixed at 4.15% w/ no points. I never thought I’d beat our 2005 rate so handily, but I’ll take the free $600/mo it will free up.
I was completely wrong about these mortgage rates.
To paraphrase Churchill “it has been said that the American dollar is a weak form of fiat money, except when compared to all those other forms that have been tried from time to time.”
I have a 5.125% fixed 30 year mortgage from 2003, and I never thought I’d refinance it.
I am in the same boat; strange days indeed. Maybe it is time to give the mortgage broker a call. Seriously, though, where are you seeing 30 years that low?
Has anyone on this site recently refinanced? We did, using a 20 year friend and “premier banker” at BOFA where we have an existing mortgage, a few hundred thousand in cash, two personal and two business accounts… and the process was an absolute nightmare.
It was our fourth mortgage with BOFA, all our metrics are pristine, and we had our VP friend escorting us through the process… and it was a nightmare.
Rates are low enough again to justify a refi, but its become so painful we won’t even bother.
They have re-orged premier banking into a cheesy customer service phone center, and our guy was moved to “ultra high net worth banking,” which means you have to be a multi-millionaire to participate.
Regardless of the rates, the banks simply aren’t looking to finance mortgages right now. That’s why activity is down. There are lot of bargains out there, but even people of means can’t take advantage of them because banks don’t want to do mortgages. Classic.
Funny you should ask. Calculated Risk has a good piece on that today (well, sort of):
http://www.calculatedriskblog.com/2010/07/what-might-fed-do.html
I would not be surprised if we hit the 3-3.5% range.
I am trying to talk my wife into refinancing right now. We have a 5.25% 30 year fixed on a two unit building. It is a “conforming jumbo” so a lot of lenders don’t know what to do with it. I am pretty sure Patelco would give us 4 3/8 (with points the APR would be 4.52%) but haven’t seen anything like 4.06%. Where did you see that ex-SFer? Is that a conforming SFH?
We could use up all of our cash and get the loan down to a conforming loan, but it would have to be a pretty darn good rate for us to be willing to do that.
I am tempted to borrow against our home equity line of credit, which is current at 3% and buy corporate bonds with it. But I am resisting the urge.
Resist the urge NVJ. I would advise against leveraging your house to buy corporates. The problem is….if rates rise, your HELOC payment increases and the value of your bonds go down. Thats a double whammy. Kind of like picking up pennies in front of a bulldozer. Yields on corporates are abysmal right now so it is not worth the risk. Throw in a “credit event” and you could have some real losses on your hands. My 2 cents.
yunion, I agree with your scenario making sense logically, but rates going up doesn’t seem likely in the foreseeable future. Rates are going to be flat or go down, every announcement from The Fed ends with “…for an extended period.” I agree that the yield on investment grade bonds isn’t worth it.
Are banks not offering fixed APR HELOCs now? I’m not in a position to know…
The 4.06% quote I got was from
Amerisave.com.
there was a second company too but I forget who it was (I’m at work, the other company is on my home computer)
I’m haggling with them and think I MIGHT be able to get 0.1-0.2% lower than that today.
CAVEAT: I live in flyover land where you can have a beautiful home in a great area for 1/2 to 1/3rd of what you pay out there in SF. I’m also very frugal. therefore, my stats are likely very different than yours.
-my loan will be CONFORMING (not jumbo or jumbo-conforming loan)
-my outstanding loan balance is only around 0.6x yearly household income
-LTV will be
@Stucco
My wife and I joined a local credit union and refied all of our old BofA loans with no problems. I have to say I’m kicking myself for being with bofa so long. The customer service at the CU is unbelievable.
About 4 years ago I got one of those infamous liar loans @ 6% fixed for 30 years, with 20% down. No payments missed/late since then and a 800+ credit score. However, I cannot document enough income to justify the loan; do I have any hope to refinance?
Sheepish, good enough you managed to get that loan. You helped create fake demand 4 years ago which doesn’t buy you much love today. Liar loans caused a lot of grief: many were priced out or discouraged. Life plans were postponed, disrupted, etc…
I wasn’t in that bunch. I bought my place 5 years before the bubble started. 100% equity after I paid it off 4 years ago thanks to a minor windfall. Debt is for suckers!
Let’s face it: you couldn’t afford it at 6%, and you still cannot afford it today at 4.6%. What does that tell us? You’re probably paying 2+ times rent in total housing expenses and digging your own hole.
chill out with the meanness, guy. you don’t know what sheepish can or can’t do.
anon/fluj,
Just commenting on what was provided:
I cannot document enough income to justify the loan
That’s pretty clear. The guy’s overextended by the bank’s standards.
^^^ Or his income originates from sources that would attract attention of the FBI.
However, I cannot document enough income to justify the loan; do I have any hope to refinance?
I try to never say never, but the likelihood of you getting a new loan without documentation is extremely low.
but much of this depends on what happens. if the second wave of the RE crisis is severe the govt may relax standards again to try to encourage people to keep paying whatever they can.
then maybe you’d qualify.
Is that a real liar loan, 20% down and fixed at 6%? Wouldn’t you have a ARM on the liar loan?
If you had a real liar loan it would be at 2.85%!
Ex-SF’er: “I have enough cash in checking accounts to pay off my mortgage this morning.”
And you even still have a mortgage why? Seriously if you have enough cash sitting in checking accounts (last I checked you’d be lucky to get much more then 1% on demand deposits) to pay off your mortgage then you are paying 5.125% interest cause you like giving money to your mortgage holder. I can see not paying off the mortgage if you have a better alternative for investment then after tax cost of the mortgage but to have it sitting in checking accounts is just doing nothing for you. Pay off the mortgage and get a HELOC that you can tap in an emergancy while you rebuild savings (which you will do a lot faster not paying interst on the mortgage).
“Is that a real liar loan, 20% down and fixed at 6%? Wouldn’t you have a ARM on the liar loan? If you had a real liar loan it would be at 2.85%!”
Unless it was fixed for 5 years or longer. Loans came in all shapes, sizes, flavors, and with various options. To say all no doc loans were “X” isn’t right.
Rillion – One advantage that I can see for not paying off a loan even when your cash position can pay it off is liquidity. If you think you may need the cash for something, investing in real estate for example, then you want to keep it liquid so you can pounce on an opportunity if it arises.
One such opportunity would be to buy a foreclosed property. We’ve seen here numerous times that there is a huge discount available to all-cash buyers.
Another more typical opportunity is a 20% down payment which makes getting a loan a lot easier these days.
… and it is always prudent to have emergency cash available for unforseen expenses.
So if you’ve use your $200K in the bank to pay off your $200K loan balance you have disabled your ability to quickly react to a RE opportunity. I guess a HELOC could replace liquid cash though I don’t know how quickly and reliably you can cash out a HELOC these days.
I think of the difference between retail returns on savings and the mortgage rate as being the cost of an option for liquid cash.
“6% fixed for 30 years”
Sounds like he just wants a lower rate.
I recently closed on a $700k jumbo-conforming loan at 5% fixed. We paid no fees of any kind and I only had to lie a little bit to get the loan through underwriting.
My agent was actually really helpful in coaching me what to write and so forth … those guys do have a use after all!
Doing a Refi is such a pain in the ass, I’d say having the house paid off is worth a few % points just for that. So many hassles, fees and screwups can arise.
Still, I would only pay off a mortgage with a low rate in full if I was also still able to keep 6 to 12 months living expenses in liquid savings.
“Debt is for suckers!”- nice broad stroke of ignorance there lol…
the mortgage interest deduction giveaway is the reason it is good to carry a loan (up to $1m).
Sheepish wrote:
Check craigslist, there are, even in this day and age, still Bay Area mortgage brokers out there slinging “no doc” and/or “stated income” loan products currently at about five and a quarter percent; appalling, but true. Don’t know any more details than what they advertise…wish I did and that I had the juice to buy cds’ against the lender.
And you even still have a mortgage why?
insurance.
I’m worried about a severe economic crisis. Note: I am not saying that we will have one, nor even that I think it is likely that we will have one. Only that I see a very real chance that it could occur.
Thus, I pay a few thousand dollars a year to keep that money available.
Once I am more confident that we will only have a long prolonged Japanese-style episode as opposed to an outright depression or currency crisis, then I will redeploy that money somewhere else (maybe pay off the house, maybe other investments).
it’s just like house insurance where people pay thousands of dollars a year on a product they’ll likely never use
===
also:
although I have been SEVERELY wrong about mortgage rates, I still believe that we may be in a once (or I guess twice!) in a lifetime event with interest rates so low. I can lock in a rate now that I’ll never get again in my life.
the way I look at it, here are the possibilities
1) the economy improves. If this happens then interest rates will rise as the economy improves and then it’ll be nice to have a locked-in low rate mortgage, and I can redeploy my cash into whatever investments I feel will lead the recovery.
2) the economy deteriorates and thus the bond market prices in lower yields. if this happens, interest rates may go lower but it’ll be nice to have cash on hand just in case. in this case there really won’t be much of a place to put my money. in the short term (2-4 years) I’m happy to have cash on hand as insurnace. Long term (4-30 years) I may use it to pay off my house.
3) the economy deteriorates and the bond market starts to rage. If this happens yields could skyrocket, and then again it is good to have my fixed low rate mortgage
so by my calculation mortgage rates rise medium term in 2 out of 3 scenarios, and stay the same in 1 out of 3 scenarios.
I’m happy having cash on hand in all 3.
====
on a side note: I can’t rely on a HELOC or something in my scenario, because this is a financial/balance sheet recession. Most of the banks are the walking dead. As long as we don’t resolve this problem (and believe me, we are not resolving the problem) we may see a return to the problems in late 2007 where the banks stopped lending to almost everybody, even “healthy” corporations and individuals.
ex-sfer brings up alot of salient facts and ideas
(as usual)but i believe the most obvious reason to hold a mortgage is the fact that the govt. subsidizes below market long term loans by giving us the mortgage interest deduction.
you do not have to be very financially sophisticated to understand this-on the contrary, you show the opposite traits by not seeing this.
If you can get a 30 year mortgage for 4%, which is effectively a 2.7% rate with a 33% discount for the mortgage interest deduction and you can also get 3% on a 5 year CD, you should definitely hold a mortgage and put the extra money in CDs. If you want to squeeze a little but of extra return, you can even put $50k of it in high yield checking at 4.0%
After taxes, you will be paying something under 1% a year on the value of the loan, but it functions as a putable bond for the holder, which is very valuable if interest rates change either direction.
“you do not have to be very financially sophisticated to understand this-on the contrary, you show the opposite traits by not seeing this.”
You are right, I am totally not financially sophisticated to even wonder why someone would want to pay $3.30 (after tax deductions) for every $100 borrowed while they have $100 sitting earning $0 (or near $0) in a checking account. I forgot you need to spend that $5 cause the government gives a deduction so if you don’t spend it you are leaving money on the table. Spend $5 to save $1.7, rinse and repeat all the way to richville!
Just because a mortage is subsidized by the government does not mean it makes sense in all situations to have one. I would argue that it is financially unsophisticated to make such broad generalizations.
@rillion,
sorry to offend you, i just meant that historically its been quite possible to put $ to work and get better returns than you are paying out in mortgage interest. even now, as nvjim points out, it is possible to beat the spread even by using nearly risk free cd’s or high yield checking accts.
OK, which banks pay 4% on checking accounts, Savings, Money market or CDs (which then get taxed)? I’m getting 1.2%.
The only time I see anything much better than that, it’s just a promo rate for a few months on new money you transfer to that bank.
Are some people just not understanding that you pay income tax on earned interest??? That’s the impression I get when you compare your after tax, mortgage rate to your before tax, mythically high, checking/CD yield.
@j,
ask nvj. but the point is the same; there have often been other better uses for $ and using a mortgage also brings your housing costs closer to what you would be paying in rent anyway, but with the benefit of investable funds. i’m not saying taking risks is for everyone, just that its hard to get rich without doing so. for example, instead of socking away say $50k/yr for 10 years (using diemos’s case)one could have bought rental property over that time (using debt, and depreciation)and joined the class of rentiers that truly become rich using opm.
I still contend that getting much over 1% on risk-free investments is NOT possible.
“but the point is the same; there have often been other better uses for $ and using a mortgage also brings your housing costs closer to what you would be paying in rent anyway”
The point is not the same if risk free yields are well below mortgage rates. That means that this strategy actually RAISES your housing cost, which in SF is already 2x higher than rent.
Your response is just to take on more risk??? That is the mentality that started the whole subprime fiasco. Investors just wanted higher and higher yields so they offered riskier and riskier loans.
http://en.wikipedia.org/wiki/Expected_value
not so j,
some risks are better than others. i think having some risk capital available to buy distressed assets in a credit constrained world while we are able to secure mortgages at super low rates is a great idea. to equate that with sub prime borrowing is to mis-understand what i’m saying.
In essence then, I think you now recognize that you are not going to break even on the additional mortgage interest you pay by deferring mortgage payment, unless you take risk.
So if you want an automatic, risk free return of 4-6%, pay down your mortgage as soon as possible.
“some risks are better than others.”
Yeah, as in the riskier the investment, the higher the yield. Just like sub-prime borrowers paid higher interest rate on their mortgage…
But I understand, you feel that distressed assets are likely to return to bubble levels, and you are advocating buying them, with interest. I would refer you to Japan in the 80’s…
j,
on the contrary, i look for distressed assets like profitable businesses that are caught in a credit squeeze. i match this discounted price with the cheap capital that can be borrowed from savers who are getting killed. honestly, this is one of those times when global uncertainty and credit dislocation is creating opportunity. repairing the balance sheet is great-but if your balance sheet is already strong this is the time to take advantage of the weak.
anonee – Everyone’s facts are going to be different and those individual facts will dictate if a specific financial move is a good or bad option. To make the blanket statement you did about mortgage debt being advisable and anyone that thought otherwise was unsophisticated just made me laugh, not get offended.
rillion,
i admit that blanket statements are typically not wise but…you have to remember that right now interest rates are very low, and that we are in a very tumultuous economic time. its akin to blood in the water. as you say, everyone’s facts are different but all decisions should be based on risk vs. reward. that being the case, this would be the time for predators to take advantage (and prey to take cover).
if you recall, the op said his balance sheet was strong enough to pay his mortgage down (out of his checking acct. no less)which to me sounds like he would be strong enough to take advantage of the weak. it was suggested that he pay his mortgage down. i think that would be a missed opportunity. so there’s my blanket statement again…