Mortgage Rates and Mortgage Applications Low
By: Rosemary Rugnetta
August 2, 2010 (FreeRateUpdate.com) – The housing market continues to make history as the economic crisis continues to grip the nation. In another day and time, it would be unheard of to have both mortgage rates and mortgage applications low at the same time. Normally, borrowers would be flocking to the banks to get mortgages at the current rates, 30 year fixed at 4.250%; 15 years fixed at 3.625% and 5/1 ARM at 3.375%.
Mortgage rates are now the lowest since Freddie Mac started to keep track of 30 year fixed rates in 1971 and 15 year rates in 1991. Actually, today’s rates are probably the lowest since the 1950s. While it should be a great time for borrowers to buy a home, mortgage applications are near the lowest level seen in over a decade. Since the expiration of the first time home buyer tax credit at the end of April, purchase applications have gone down 42%. As the tax credit strengthened the housing and mortgage markets, the end of the tax credit is weakening the housing market. Buyers are no long motivated even though the current mortgage rates are low.
Many current home owners could save thousands of dollars by refinancing at this time but many are unable to do so. Those who were able to refinance have already done so as the rates were dropping. With the collapse of home prices, many borrowers lack home equity and now owe more than their home is worth as 24% of all homes with a mortgage are currently valued at less than the outstanding mortgage. These underwater borrowers cannot meet the required loan to value ratios to qualify for a new mortgage. Without cash in hand, they must sit and wait for housing prices to increase. 22% of all refinances were actually “cash in refinances” where the borrowers paid down a portion of the loan.
As the lending environment has changed, few people can meet the strict qualifications required. Lenders are making it tougher for people with more accountability for their use of credit and credit history. As high unemployment has created damaged credit scores, many people have ended up with lower income due to job and career changes. The current employment outlook and long term job stability has affected how people spend money. Instead of taking on more debit such as home ownership, people have become more interested in paying down their current debt, such as credit cards. The fear of losing jobs has crossed over to the fear of home ownership.
With the continued turmoil with mortgages that need to be modified and short sales and foreclosures flooding the market, some buyers and investors may think that mortgage rates will continue to go lower. Others think that since the big three banks are doing the majority of the mortgages, there is no competition and no reason for mortgage rates to go lower. With mortgage rates and mortgage applications low at the same time as low housing prices, buyers are still not motivated to buy while current home owners continue to find it difficult to qualify. It is going to be a long process before the housing and mortgage market stabilizes and turns around for the better.