Low Mortgage Rates Not Helping Refis

Click to enlarge:

Source: Bianco Research


Source: Jody Shenn via Bloomberg Chart of the Day


While many are all excited about RRE, I wanted to post these charts as a reminder as to the extraordinary accommodation in place to create what is at best a mediocre stabilization in the Housing market.

ZIRP + 14 month Foreclosure Abatement has produced only a modest stabilization of prices, a small tick off of the bottom in volume.  Home builders are doing better, with a substantial improvement driven by multi-family units. Note that much of this is being driven by the red hot rental market — not a housing recovery.

Jody Shenn of Bloomberg pointed out yesterday that 80% of all mortgages are at least 0.5 percentage point higher (or more) than market rates, offering a huge incentive to refinance. Yet prepayments for fixed-rate, government-backed mortgage bonds are less than half their 2003 peak (i.e.,, normal pre-boom years). The second chart above shows average new loan rates versus an index of refinancing applications — loans are still depressed despite reaching a three-year high.

In other words, despite the record low rates afforded by a massive FOMC accomodation, refis and sales remain relatively meager.

Housing bulls will tell you homes are at their cheapest level according to the worthless NAR Home Affordability Index. But there is an enormous difference between homes that are affordable and buyers that can afford them. A buyer needs a 20% down payment, a good credit score, steady income, and sufficient ability to qualify for a mortgage under tight credit conditions. Such buyers are much rarer today than 7 years ago when anyone who could fog a mirror could get financing.

And this is before the foreclosure machinery creaks back to life.

Stability is better than a freefall, but it is not the same as a robust recovery.




See also
Record Mortgage Rates Spur Meager Refi Gains: Chart of the Day (Bloomberg Terminal)
Dave Wilson

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