Low Rates Finally Make Mortgage Loans Palatable

Even though long-term mortgage interest rates have been at all-time record lows for weeks, very few borrowers were taking the bait.

At least until this past week, according to the Mortgage Bankers Association. Last week, home loan applications rose by 7.6 percent based on the MBA’s seasonally adjusted index. Home purchase applications rose for the first time in five weeks, after dropping to a 13-week low the previous week, and refinance applications jumped to their highest level in over a year.

Mortgage giant Freddie Mac reported last week that the average rate on a 30-year fixed rate loan sunk to 4.57 percent, excluding points, unchanged from the previous week and tying the all-time record low in the Freddie Mac survey dating back to 1971. By comparison, rates at the same time last year the average rate was 5.31 percent.

The fact that applications ticked upward last week is an indication that the housing market is finally beginning to correct itself after the end of the federal tax credit program in April.

“The tax credits made things a lot more choppy,” said Dean Maki, of Barclay’s Capital in New York, as quoted in Rueters article. “We will continue to see a payback from the tax credits through the next few months and then we will return to a gradual upward trend. …We are expecting a continued gradual improvement in the labor market and that will also lend support to the housing market going forward.”

Still mortgage purchase demand is down 42 percent since the end of the home-buyer tax credits and refinance activity is much weaker than would be expected with such low rates. The current economic climate is prohibiting more borrowers from refinancing and even rock bottom rates will not be able to sustain a housing market recovery until either the unemployment rate improves or credit standards loosen.

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