Mortgage applications barely moved last week, even as a run on the U.S. bond market pushed interest rates down.
A weekly measure from the Mortgage Bankers Association showed total applications up by just 0.4 percent from the previous week, seasonally adjusted. Applications to refinance rose 3 percent, and applications to purchase a home fell 4 percent.
Mortgage rates began their slide as investors, concerned about trouble in emerging markets, dumped out of the stock market and fled to the relative safety of the bond market.
The yield on the 10-year Treasury fell to its lowest level since November. Mortgage rates follow the 10-year as well as yields on agency mortgage-backed securities.
The MBA’s survey had the average rate on the 30-year fixed conforming loan falling from 4.52 percent to 4.47 percent last week, the lowest since November, but more recent readings from Mortgage News Daily had rates hitting 4.34 percent on Friday and 4.28 percent on Monday.
“Burnout. A 4.4% rate is not enough incentive to motivate people to refinance. The most rate sensitive borrowers have rates below 4%,” said Michael Fratantoni, chief economist at the Mortgage Bankers Association. “Folks above that level have already passed on rates better than today’s levels, indicating that something else is preventing them from refinancing, likely lack of equity or lack of income.”
Purchase applications are now down 17 percent from a year ago. This latest drop in demand, despite lower rates, would seem to confirm a slowdown in home buying overall. Closed sales of existing homes fell in December, as did signed contracts, indicating weak buyer demand heading into spring.
While a sharp rise in interest rates last summer threw a wet blanket on home sales, rates have since stabilized, and sales had started to return in the fall.
The trouble now is a lack of consumer confidence in the overall economy, still tight credit conditions and fast rising home prices. Job and income growth are just not keeping pace, not even close.
Mortgage refinance applications are now down nearly 63 percent from a year ago, when the average rate on the 30-year fixed hovered around 3.5 percent.
The refinance boom, largely in the first half of last year, will save U.S. borrowers $21 billion this year in monthly payments, according to new data from Freddie Mac. That is $21 billion in potential spending power.
With rates higher now, however, and far fewer borrowers able to benefit from a refinance, future savings will be far less.