Long rates subsided some last week, but mortgage activity still tailed off a bit. While the long-term outlook for rates seems to point to rise, now may be an opportune time to buy your home.
The Mortgage Bankers Association reported on mortgage activity through the week ending February 25 today. While the average contracted fixed rates on 30-year and 15-year fixed rate mortgages fell, mortgage activity still decreased in the week measured.
The average contracted rate on 30-year mortgages fell to 4.84%, from 5.0% the week before, and 15-year mortgage rates dropped to 4.17%, from 4.28%. When rates fall, mortgage activity usually rises, especially in refinancing transactions. This week, the Market Composite Index of mortgage activity declined 6.5% on a seasonally adjusted basis. The Purchase Index, which measures mortgages taken out on residential structure acquisitions, fell by 6.1% on a seasonally adjusted basis (3.5% unadjusted).
A simple perspective of the Refinance Index would have expected to see an improvement in this kind of activity this week. However, as rates have seen an extended period much lower than current levels, a relatively low number of debtors remain to benefit through refinancing at current rates. Thus, the Refinance Index also declined by 6.5% this latest week. It will take much lower rates to spur a burst in refinancing activity in the near-term. Refinances accounted for a smaller amount of total applications this past week as well, dropping to 64.9%, from 65.7%.
The four-week moving average of activity also highlights a soft current market, with the Market Index down 2.5% through that span. Both purchase and refinance activity were down at levels nearly equally to the composite index through the period as well (Purchases down 2.2%; Refis down 2.7%).
We can venture to say why activity is down generally, and many are blaming rising gasoline prices. Theories weigh that since the cost of transportation is rising, speculative and prospective activity is being nixed by cost conscious consumers. One might add, and I am, that the draw of interest in global unrest has Americans glued to their televisions and gadgets, watching history unfold before them.
Influential bond investor Bill Gross just published his monthly insights, within which he discusses the possibility of Treasury yields rising once Quantitative Easing concludes. Inflation and other risks and threats are poised to pressure all lending rates in the months and years ahead. Home prices have continued to ease in recent months and are nearing recently marked bottoms. For these reasons, I would have to agree with other voices pointing to the current housing market as perhaps best (maybe best of worst) to buy a home in for those prepared to, when considering potentially rising financing costs.