The Mortgage Bankers Association America announced this morning that the number of mortgage applications for the week ending July 25 dropped 24% on a seasonally adjusted basis from the previous week. The drop is due mostly to a sharp decline in refinancings, which are down more than 50% from levels of just four weeks ago.
Not coincidentally, that's about the period of time mortgage rates have been climbing. According to Freddie Mac (NYSE:FRE), the rate on a 30-year, fixed mortgage has risen from 5.21% on June 19 to 5.94% as of July 24. Rates will be updated tomorrow, and are expected to be even higher.
So what does this mean? It depends on who you are.
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If you are a homeowner: The time to refinance your mortgage and lock in four-decade-low interest rates may have passed -- or has it? While there's evidence that the economy is recovering, we're not out of the woods yet. Rates could drop again if progress isn't made. Plus, 6% is still a darn good rate. The rates on 30-year mortgages were an average 8% in the '90s, and were in the double digits throughout the '70s and '80s.
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If you work in any field related to real estate: All you mortgage brokers, Realtors, title company employees, appraisers, et al. -- we hope you've been socking away a good portion of your paycheck during the boom years, because you may need it if rates keep going up. There are already rumblings of layoffs within the industry, as mentioned in real estate content provider Inman News. So start fattening that emergency fund.
- If you're a consumer: Consumer spending, which accounts for two-thirds of the nation's economic activity, has been bolstered by the housing and refinancing booms. Lower monthly payments, bigger profits on home sales, cheaper home equity loans, and "cash out" refinancings (by which homeowners take out a chunk of equity and use it to remodel the house) have all put more money in Americans' pockets. The fear now is that fewer refinancings will mean less spending, which could hurt the economy. However, it's important to keep in mind that a refinanced (and lower-rate) mortgage is not just a one-time financial benefit -- monthly mortgage payments remain low for years, freeing up cash for other purposes. Also, though a slowdown is expected, Americans will still continue to buy homes, due to career changes, expanding families, and so on.
If you're wondering if refinancing still makes sense for you, or want to learn how to navigate the mortgage maze, visit our Home Center.
