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Sancho Panza

Us Mortgage Refinance Applications Down 62% From May 2013 Highs.

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Calculated Risk 21/8/13

'Mortgage applications decreased 4.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 16, 2013. ...

The Refinance Index decreased 8 percent from the previous week. The Refinance Index has dropped 62.1 percent from the recent peak reached during the week of May 3, 2013. The seasonally adjusted Purchase Index increased 1 percent from one week earlier.

...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.68 percent from 4.56 percent, with points increasing to 0.42 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

emphasis added

The first graph shows the refinance index.

With 30 year mortgage rates up over the last 3 months, refinance activity has fallen sharply, decreasing in 13 of the last 15 weeks.

This index is down 62.1% over the last 15 weeks. The last time the index declined this far was in late 2010 and early 2011 when mortgage increased sharply with the Ten Year Treasury rising from 2.5% to 3.5%. We've seen a similar increase over the last few months with the Ten Year Treasury yield up from 1.6% to over 2.8% today.

The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index has generally been trending up over the last year (but down over the couple of months), and the 4-week average of the purchase index is up about 6.7% from a year ago.'

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Wed Aug 21, 2013 6:14pm EDT

(Reuters) - Wells Fargo & Co (WFC.N), the largest mortgage lender in the United States, will cut 2,300 jobs in its home loan business because fewer customers are refinancing as interest rates rise, according to an internal memo reviewed by Reuters.

The cuts would represent around 3.3 percent of the bank's consumer lending employees, the bank said. Although the bank does not disclose how many of its staff work in home loans specifically, Wells Fargo had over 11,000 mortgage loan officers on its payroll at the end of March.

http://www.reuters.com/article/2013/08/21/us-wellsfargo-jobcuts-idUSBRE97K18R20130821

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Drhousingbubble blogged his/her thoughts about refi when the rates first spiked in July, then they dipped a little with some calming words from the Fed, before coming right back up last few days. Providing rates stay at this level, or especially if they rise further, going to have consequences for US bubble 2.0

This minor rate move will need to shave off 15 percent in home prices to maintain similar affordability levels. Higher rates will also inspire many of those investors to look elsewhere for higher yields. Mortgage rates since 2011 only did one thing:

mortgage-rate-change.png

This reversal is unprecedented so we will see in the next few months what impact this will have in the overall housing market. Also, in places like California, many thought that lower rates were here forever similar to Japan. In this regard the recent market moves differ. Many bought and kept refinancing to lower rates so the risk was largely ignored. But now new buyers do not have the flexibility of previous sellers. The refinancing party has quickly shut down.

http://www.doctorhousingbubble.com/record-surge-in-mortgage-rates-mortgage-rate-affordability-incomes/

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If US mortgage rates are going up why would you refinance?

They are still low against longer averages.

Fixing at current rates is still a steal. Which is part of the unpredictability of all this to me. I'm convinced we'll see rises from 2015 and higher/faster than people expect - but what will the immediate impact be?

Thisismoney updated some charts today:

http://www.thisismoney.co.uk/money/news/article-1607881/When-UK-rates-rise.html

Everything is leading up to this now. When drama does start it will probably be in tandem with some other pain (money will move out of assets and in to commodities or something so food/fuel will spike causing further pain).

How will government react? it will be early in a term so may just decide to let it play out. Or will they look to give mortgage breaks because of the 'unforeseeable black swan event on hardworking families' or will they nationalise some housing stock (BTL?) or is there such huge latent demand that will suck up property on interest-only as it starts to get priced down. Or will it be a non-event as 80% of the market remortgaged on fixed at 2013/14 low rates?

Edited by slacker

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Fixing at current rates is still a steal. Which is part of the unpredictability of all this to me. I'm convinced we'll see rises from 2015 and higher/faster than people expect - but what will the immediate impact be?

The idea of bailing out your 'important' second home / BTL investors, nationalising their homes by Gov paying high prices for them, is stealing too. Maybe Executive Sadman is correct, and it's what is happening in the US, but not so blunt as calling it nationalisation.

Making the financial system + banks make houses the entire economy, to keep prices high, and bail out big debtors and keep older owners in top positions, not allowing non-owners to get any value but push them towards renting.

Anyway this thread was looking at moves and changes in Mortgage Refinancing the US...

US mortgage applications are crashing back down, but seemingly so many investors/banks ect gunned up with cash-money to buy outright in recent times. Some of the "all cash" buyers must have alternative debt in place for their house purchases.

The news of rocketing home sales was plastered all over the headlines. However, mortgage applications are going in the exact opposite direction (of course little was reported on this):

existing-home-sales-and-mortgage-apps.jpg

The median home price in the US is $214,000 and from multiple reports, most Americans don't have much saved up (definitely not enough to buy a home without a mortgage or even a car for that matter). This trend simply highlights the massive power being wielded by the cash buying crowd. Someone is buying these homes and if mortgages are not being used, something else is being used. The cash buying crowd has always been around but as a small subset of the market. Today, it is one of the biggest players out there. The group is big enough to push prices up as it has over the last few years.

GS-housing-cash.jpg

Refinancing boost collapsing

The economy has received an ancillary boom courtesy of refinancing activity. Keep in mind banks have made droves of money from refinancing fees. Yet with higher rates, the gig is likely up:

It is clear that the jump in mortgage rates has stifled this activity. Yet this only helps current homeowners (and by the larger trend, home ownership has been falling).

http://www.doctorhou...ome-sales-rise/

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