October 15, 2003

Rates Rise, Mortgage Aps Fall, Nothing to See Here

Yes...I've been wrong early and often about refinancing activity....But I do have a truism on my side. Historically low rates can't stay historically low for all of history. Rates will rise--if only to reflect the fact that the additional buyers required to keep sales of new and existing homes at record levels are just plain bad credit risks. Who knows what the lag time is between rising rates and slower purchases. It all comes down to affordability--a function of home prices and incomes. On the income side of the ledger, the situation isn't getting appreciably better. And on the price side of the ledger, falling home prices wipes out the chief reason the housing boom has lasted as long as it has: the belief that you can buy at any price and sell shortly thereafter for a profit, or refinance at 115%-125% and cash out the difference to live in the manner to which you've grown accustomed. Note of caution: never underestimate the masochism hidden within the financial character of the modern American consumer. A recent article on cardweb.com reported that the average American household owns 16 credit cards with an average total balance of around $8,500--and that's just credit card debt. It doesn't include unpaid car loans, the mortgage (at historically low rates), or the M.B.A. loans that were supposed to lead to a raise at work. US mortgage applications fall: "THE MORTGAGE BANKERS Association of America said its index of applications for mortgages to buy homes fell 18.6 percent, to 359.0, its lowest level since the week ended April 25. Even if the decline in applications signals that home sales are likely to fall later this year, few economists expect sales to plummet, because rates are still low by historical standards. Applications for mortgages to buy homes last week were just 8.3 percent below their average for the year. Home sales, which have provided crucial support to the economy, are so far on track to set a record this year. Existing home sales hit a record in August, the last month for which figures are available, and new home sales approached a record. "


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