Refinances and New Home Mortgages Stall

By Mike Colpitts

Demonstrating there is a tipping point for home sales to decline, applications for refinancing and home mortgages declined for the third straight week, according to the Mortgage Bankers Association. The four week moving average also showed a decline, indicating that home sales are stalling further after the expiration of the federal buyer tax credit.

The erosion in sales demonstrates that the much sought after recovery in housing was just a “sugar high” developed by government efforts to engineer a recovery that didn’t have much of a chance of sustaining itself. Refinance applications declined nearly 1%, stalling for the third consecutive week, and purchases declined 3.3% for the week. Interest rates are still, however, near record lows.

California House for Sale

The combined four week moving average dropped 2.3%, while the share of refinancing activity remained the largest percentage of mortgage applications at 81.1%.

The drop-off in mortgage applications clearly demonstrates that the number of homeowners and those looking to buy a home or move-up into a larger home has deteriorated. High unemployment, weak overall economic conditions and concerns about job security are holding the U.S. economy back from developing into any real sort of economic recovery.

Unemployment in the high teens in many areas of the country, including California, Ohio, Rhode Island and much of Florida is stifling economic growth. Without more hiring by employers, a recovery in the housing market won’t be able to develop since consumers need jobs before they can qualify for a mortgage.

The average contract interest rate for a 30-year fixed rate mortgage decreased to 4.44% down .03 for the week on an 80% loan-to-value mortgage. The contract interest rate for 15-year fixed-rate mortgage also declined to 3.88% from 3.96%.

The Obama administration is fighting an uphill battle in efforts to stabilize the nation’s housing market, implementing more than a dozen programs, including the tax credits. The administration’s chief economic advisor will be leaving his post in November and it is hoped that another advisor is able to engineer a program that will bolster the administration’s efforts.