The Mortgage Bankers Association released its weekly index of mortgage applications. According to the index, mortgage applications actually lurched forward, rising 0.5 percent from the previous week on a seasonally adjusted basis. This is good news for the housing market, however, numbers indicate that refinancing is actually down for the week.
This is the second week in a row that mortgage applications have increased. Many see this as a sign of a housing market turn around especially in the midst of higher interest rates and the possibility of significant increases in average mortgage rates. The Obama administration’s first-time homebuyer tax credit may play a role in the increased mortgage applications.
The tax credit is set to terminate at the end of April. This tax credit was an extension of last year’s $8,000 credit. It was renewed in November, but has thus far failed to see the success it initially garnered in 2009.
The mortgage application increase may be a result of weather patterns returning to normal. The arctic blast that hit the East Coast in February slowed applications drastically. Home sales also reached lows in January as analysts feared the real estate momentum was coming to an end.
However, refinancing dropped this week from 69.1 percent last week to its current 67.2 percent. This is the lowest number since October. Refinancing is the primary method underwater homeowners have at their disposal to get out of the downward spiral of debt.
The Obama administration has provided numerous programs including the Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP) that are designed to help homeowners with negative equity in their homes, that is, they owe more on their mortgages than the home is truly worth.
The programs, however, have proven less than successful. Many homeowners are not eligible for the programs due to poor credit history. Moreover, banks have been notoriously slack for processing and modification or refinancing requests because the burden and red tape is too great.
With refinancing down, the housing market may not be out of danger yet. A shadow inventory of thousands of foreclosed homes and homes that may go up for short sale is still lurking in the sidelines. Once these homes hit the market, there will be a flood of homes.
What is the effect of such a glut of homes? Home prices could plunge further. Home sales may decrease and the market will fail to stabilize. If mortgage rates increase when the Federal Reserve ceases buying mortgage-backed securities at month’s end, there will be even less incentive to purchase homes.
It remains a renter’s market. Americans are cautious about where they spend their money; and, now the dream of owning a housing is becoming more of a nightmare scenario of debt and fear of eviction.
Mortgage Rates at a Glance
30-year fixed-rate mortgage: 5.01 percent
15-year fixed-rate mortgage: 4.32 percent
One-year ARMs: 6.77 percent
Written by Lani Shadduck
HULIQ.com
Source: Mbaa.org
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