Eye On Housing
The Mortgage Bankers Association’s Weekly Application Survey shows a weekly increase in the Market Composite Index by 15.1% on a seasonally adjusted basis. The Refinance Index soared 26.0% from the previous week and the Purchase index decreased 2.7%. Looking at the Refinance series since its inception, the latest 10-week sprint of over 160% is the largest since January 2009 when it increased 170%.
While economic conditions remain positive, the coronavirus has rattled financial markets and created uncertainty. The financial volatility plunged the 10-year Treasury to below 1%, which in turn brought down the 30-year fixed rate mortgage. It declined to the lowest level in more than seven years, decreasing from the previous week to 3.57%. The Mortgage Bankers Association expects refinancing activity to increase further until virus fears subside and rates stabilize.
The Federal Reserve also enacted this week a 50 basis point-cut in the target range for the federal funds rate. This was the first time since October 2008 that the Federal Reserve’s Open Market Committee enacted such a change outside their typical meeting schedule.
Apparently the lessons that should have been learned from the 2008 mortgage meltdown either weren’t learned or are being ignored in the interest of profits. Originating fixed rate thirty year mortgages at under 4% sounds great but when interest rates eventually rise (and they will), some entities will be holding them and the decrease in their asset value will cause financial disaster for the holders. If all this sound familiar, please Google The Great Recession. It’s amazing what too many in the mortgage industry will do to make more money. Once again urging homeowners to refinance to use long-term debt to pay credit card (short term) debt, or to get into the roaring stock market should be criminalized. Instead it increases offenders profits.