Demand Falls as Mortgage Rates Jump
Feb 9th, 2011 @ 11:04 PM by Amber Nelson
Mortgage interest rates jumped up this week, according to the Mortgage Bankers Association , and as a result home loan applications took a dive, a sign that the housing market is not reviving on pace with the rest of the economy.
The MBA reported that the average rate on a 30-year fixed rate mortgage broke the 5 percent barrier this week, moving up to 5.13 percent from 4.81 percent the week before. That is the highest rate in almost 10 months. As rates increased, demand for mortgages slowed with the MBA seasonally adjusted mortgage application index falling 5.5 percent.
“Mortgage rates increased last week as many incoming economic indicators continue to show stronger growth than had been anticipated. Refinance volume continues to be low, as fewer homeowners with equity have any incentive to refinance,” said Michael Fratantoni, MBA’s Vice President of Research and Economics in the association’s press release. “We are at the beginning of the spring buying season, but purchase volume remains weak on a seasonally adjusted basis.”
The Obama administration could face a difficult decision if the housing market does not show greater signs of life: the decision of when and how much government support to withdraw from the industry. The administration is due to offer a proposal on the future role of government mortgage finance companies Freddie Mac and Fannie Mae soon, which backed 85 percent of new home loans in 2010.
“Everyone agrees there needs to be sustained and meaningful change, it’s just that the shock-and-awe treatment is probably not the best solution because it’s going to have unintended consequences,” said Cameron Findlay, chief economist at Lending Tree in Irvine, California as quoted in a Reuters article.
It is still unclear when the private sector is going to start providing more of the mortgage market’s funding, a necessary part of the housing recovery. As of yet, the risks seem to outweigh the gains for many investors.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.
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