Home loan demand falls as interest rates climb

http://www.msnbc.msn.com/id/13060028/ ^ | May 31, 2006

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Mortgage refinancings decline as interest rates rise MSNBC.COM SPECIAL REPORT

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Updated: 7:59 a.m. ET May 31, 2006 NEW YORK - U.S. mortgage applications fell last week, reflecting a decline in home refinancing loans as interest rates climbed, an industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended May 26 decreased 1.9 percent to 541.9 from the previous week's 552.6.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.66 percent, up 0.05 percentage point from the previous week, and matching a four-year high touched two weeks ago.

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btt

[VRWCmember]

It's a nitpick, but the economic ignorance of the MSM is on display again. Homeloan demand did not fall in reponse to rising interest rates. The demand stayed the same, but the volume, or quantity demanded fell in response to the rising interest rates (prices for loans) as is to be expected. A change in demand would be the case if volume increased or decreased while interest rates remained the same, or if volume remained the same even though interest rates changed.

[Bob Buchholz]

Simply put, Laffer wins again.

[VegasCowboy]

This should make you happy. People are borrowing less against their equity.

BTW, this has nothing to do with the purchase or sale of homes. With rates as low as they were, it is a given that people would refinance. In fact, for most people it was the smart thing to do. Now that rates are ticking upwards, it is obvious that refis are slowing down.

[Petronski]

Mortgage refinancings decline as interest rates rise

[VRWCmember]

Demand is the entire relationship between price and quantity, as represented by a demand schedule or a demand curve. A change in the price of the good results in a change in the quantity demanded, but does not change the demand for the good. As the diagram below indicates, an increase in the price from $2 to $3 reduces the quantity of this good demanded from 80 to 60, but does not reduce demand.

Change in demand vs. change in quantity demanded

A change in demand occurs only when the relationship between price and quantity demanded changes. The position of the demand curve changes when demand changes. If the demand curve becomes steeper or flatter or shifts to the right or the left, we can say that demand has changed. The diagram below illustrates a shift in the demand for a good (from D to D'). Notice that a rightward shift in the position of the demand curve is said to be an increase in demand since a larger quantity is demanded at each price.

This is basic Economics 101, failed by most reporters (which explains why they believe in liberal policies). Source data is from http://www.oswego.edu/~economic/eco101/chap3/chap3.htm