Mortgage Rates Fall to 4.59%, Enough To Move Demand



Original Post Date: July 21, 2010

By: Nick Timiraos


Record low mortgage rates spurred an uptick in new-purchase mortgage applications last week for just the second time in the past two months, while more Americans also applied to refinance, according to the Mortgage Bankers Association.

Rates fell last week to 4.59% on an average 30-year fixed-rate mortgage, which is down from 4.69% one week ago and the lowest ever recorded by the trade group since its survey began in 1972. Other measures show that rates continued to fall this week: Zillow’s Mortgage Marketplace quoted an average of 4.37% on Tuesday.

Those low rates haven’t done much to drive up demand for new home loans in recent weeks. Purchase activity is still more than 40% down from its highs of April, though it ticked up by 3.4% last week. That’s largely because home-buyer tax credits pulled demand forward. But the recent drop in applications to 14-year lows “smacks of more than a temporary, one-off fall in activity,” says Paul Dales, chief economist at Capital Economics.

Refinance activity has held up better because it’s driven much more by low rates than other economic factors that go into buying a house. Refinance applications were up by 9% last week and are up by almost 30% over the past four weeks, though activity is still below the near-term May 2009 peak. Around 80% of mortgage activity last week was for refinances, the highest refinance share since April 2009.

Still, refinancing activity isn’t as high as would be expected at current rates, in part because it’s harder to get a loan today. Also, many borrowers have lost equity or taken a hit to their incomes or credit and either can’t qualify or aren’t willing to pay extra fees that come with being a bigger credit risk.

Of course, it doesn’t make sense for everyone to refinance. Borrowers who plan to sell in the next few years will want to think twice about paying closing costs to get a low rate.  Also, borrowers who’ve had their loans for a long time—and are therefore paying a greater share of their payment towards their loan principal, as opposed to interest—may not want to refinance.