Low Mortgage Rates Met With Blank Stares

Link: http://blogs.wsj.com/developments/2010/06/09/low-mortgage-rates-met-with-blank-stares/

Original Post Date: June 9 , 2010

By: Nick Timiraos

More evidence is out on Wednesday that the pool of homeowners who can refinance under today’s more stringent lending standards has been exhausted: Mortgage rates have hovered close to their lowest levels in decades, and yet refinance demand fell last week from the previous week.

Demand for home-purchase mortgages also continued to fall last week, according to the weekly application survey from the Mortgage Bankers Association. That means there have now been five straight weeks of declining demand for purchase mortgages, which have fallen to their lowest level since February 1997.

“Home buyers have not yet returned to the market following the expiration of the home-buyer tax credit at the end of April,” said Michael Fratantoni, the MBA’s vice president of research and economics.

Early indications show that home sales activity plunged in May, the first month after the tax credit’s expiration. Sales in markets including Minneapolis, Denver, Seattle, Phoenix and New Jersey were down by around 25% in May from one year earlier.

Most analysts expected housing demand to fall after the tax credit expired, but few had predicted that mortgage rates would tumble to such low levels after the Federal Reserve ended its purchases of mortgage-backed securities in March. Average rates on 30-year fixed-rate loans fell to 4.81% last week from 4.83% at the end of May.

Mortgage rates tracked by Zillow’s Mortgage Marketplace index reached their lowest level of the current cycle on Tuesday, with participating brokers quoting an average 4.58% rate for 30-year fixed-rate loans.

Nearly half of all borrowers with 30-year conforming fixed-rate mortgages have mortgage rates of 5.75% or higher and could reduce their rates by a full percentage point if they refinanced at current rates, according to investment bank Credit Suisse. And a one-percentage-point decline in mortgage rates can cut $1,500 off the annual payment on a $200,000 30-year fixed-rate mortgage.

But many borrowers can’t refinance because they don’t have enough equity, their credit isn’t strong enough, or they’re income has fallen in recent years. Others may qualify but face extra fees that make refinancing too expensive to justify. Also, many of those who could refinance likely did so when rates fell to comparable levels last year in March, August and December.