Mortgage applications fall even as rates plunge

Market Watch ^ | September 27, 2006 | Rex Nutting

[ContemptofCourt]

Rates on the standard 30-year fixed-rate mortgage didn't climb above 6% to stay until October 2005 -- 15 months and 11 rate hikes after the Fed began to increase short-term rates. And despite all those rate increases from the Fed, the interest rate on a 30-year mortgage had actually climbed only as high as 6.8% by July 2006, shortly after Bernanke and company raised short-term rates for what is, so far, the last time in this cycle.

Since then, with the bond market increasingly convinced that the Fed is done, interest rates on a 30-year mortgage have actually dropped. The national average for a 30-year fixed-rate mortgage was just 6.33% on Sept. 21, according to the data from Informa Research Services on the MSN Money site. That's an effective rollback in mortgage rates to March 2006, when the national average stood at 6.31%.

That drop in mortgage rates should be enough to raise a few worries at the Fed. After having fought so hard to raise mortgage rates to let some air out of the housing bubble, the Fed can't be happy to see the bond market so rapidly undo that work. Certainly somebody at the Fed has got to be asking, "Do we need to hit the bond market with another rate increase so that investors in long-term bonds and mortgage lenders don't forget the message?"

At the long end of the yield curve, the 10-year end, the bond market right now is pricing in a cut in interest rates by the Fed in 2007. By bidding long-term interest rates below 5%, however, bond investors are likely to force the Fed to move in exactly the opposite direction. If long-term interest rates drop lower or even just stay at this level, it's likely that the Federal Reserve will move to raise rates one more time, especially if current low rates on mortgages start to show up in an increase in housing sales or home prices.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/NoShortageOfBubblesAndTroubles.aspx

[truth_seeker]

"The seasonally adjusted number of applications for purchase loans fell 5.5% on a week-to-week basis, to the lowest level since November 2003. The number of refinancing applications decreased by 4.1%."

"Plunge" describes 5.5% and 4.1%?

I wonder what word would be used for something significant?

[GodGunsGuts]

As I understand it, that all happened in one week.

[LurkedLongEnough]

Shades of eminent domain court rulings?

[GodGunsGuts]

I hadn't thought of that before. But now that you bring it to my attention...

[excalibur1701]

"volume of applications for mortgages"

Maybe I don't have a complete understanding of how this works, but shouldn't they be using the number of "accepted" applications?

Seems to me if you are including "rejected" applications, then you are muddying the water.

Sort of like how Hollyweird muddys the water on Box Office success. They don't tally the number of ticket sales, but the ticket sales cost. Since ticket prices keep going up, this can be deceiving on their definition of a hit.

[churchillbuff]

In Michigan, houses sit on the market for over a year,""

IS that true even in the ritzy suburbs of Detroit?

[Proud_USA_Republican]

Ding! Ding! Ding! We have a winnah!!!!!


also factor in that augest is always one of the busiest months of the year for home buying because many families who are moving are under more pressure to sell and buy and get settled into their new homes before the new school year starts.

[Moonman62]

You have unwitingly hit on something....the fed has been raising short term rates, yet mortgage rate...long term, 30 year loans, have been declining (creating a yeild inversion). There is some thought that the fed may not stop or lower rates, but increase again to send a message to the LT market.

It's the other way around. The market is sending a message to the Fed.

And BTW, mortgage rates are declining because the yeild on the 10 year note has been declining.

[Moonman62]

Yield inversion is a sign of desperation. Big time.

Yield inversion is a sign that the Federal Reserve has set short term rates too high.

[Moleman]

Is that true even in the ritzy suburbs of Detroit?

Even more so. houses just won't move, especially expensive ones.

[churchillbuff]

I don't suppose the "Big Three's" woes have anything to do with that?

[goldstategop]

Memo to the banks: lower the prime interest rate on loans, stupid.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus