Good News for Household Balance Sheets

A quick note on the Mortgage Bankers Association's release this morning on weekly mortgage applications. Here's the opening of Bloomberg's account:

Mortgage applications in the U.S. increased 2.9 percent last week as more homeowners refinanced to take advantage of lower interest rates.

The Mortgage Bankers Association's index of applications to buy a home or refinance a loan rose to 841.4 from a revised 817.7 a week earlier. The group's refinancing index increased 6.5 percent, while the purchase gauge dropped 4.5 percent.

This is great news for a lot of household balance sheets. The big picture problem over the last two years has been falling real estate values, which have unleashed all sorts of ugly second- and third-order effects in the financial markets. The small picture problem is household cash flow, people simply being able to afford their monthly payments.

Our view is that residential and commercial values must fall further, much further in some places, in order to reach any sort of sustainable equilibrium (i.e., a base for reasonable rates of future price appreciation). But where foreclosure can be avoided by squaring households' monthly cash flow with their debt service, we'll all be better off. If lower mortgage rates and the attendant refinancings help push the system in that direction, we'll have a better chance to muddle through all this with a little less damage.

Source

Courtney Schlisserman, "U.S. MBA’s Mortgage Applications Index Rose 2.9% Last Week," Bloomberg, December 17, 2008

Comments

[Steven Hansen:]

kevin, the mba release said that 77% of the mortgage applications were for refinancing.

2008 Dec 17 10:21 PM

[Moon Kil Woong:]

What would be good news for household balance sheets is if for once the savings rate of Americans ever was higher than their expenses plus losses. The only reason American savings rates turned positive recently is because their net worth declined more than the positive balance in their savings rates.

Debt is not a bad thing. Just debt you can't ever save or pay off is. Unfortunately, most households fit in this category. Hopefully, refinancing to a lower rate like the astute "the hand" points out Americans are doing will help facilitate this.

The last things Americans need is more mortgages, more houses, more consumer spending and more debt. Even if Bernake and Paulson say rampant spending is good, they are not god. They are more like a serpent in the garden of greedom.

2008 Dec 18 12:34 AM

[rm:]

[Mortgage applications in the U.S. increased 2.9 percent last week ]

Apps may be up, but they don't always lead to approvals.

2008 Dec 18 09:05 AM