Conventional 30-Year Mortgage Rates reach 40 year lows

According to a chart from the St. Louis Fed the interest rates on 30 year-fixed conventional mortgages has hit all time lows in February 2009. (Or at least since the beginning of the chart---1970's).

What is also interesting is that for every recessionary period (highlighted in gray), the mortgage rate dropped.



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What does this mean? If you haven't yet looked into refinancing your mortgage, you may wish to consider it---However, given that unemployment continues to rise I think it's safe to say that the recession will continue for a few more months (or quarters). So there's a chance that mortgage rates could drop further---But if you can refinance, definitely look into it--and be sure to get 3 or 4 quotes from competing mortgage lenders.

Moody's estimates more big drops in home values

Crains Chicago published a pretty interesting story today that shows what the drop in home values have been since the peak (to Q3-2008) and what Moody's Economy.com estimates the total home value price drops will be.

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According to Moody's:

• The United State's home prices will bottom in Q4-2009 after dropping 36%
• Miami's home prices will drop over 66% from the peak
  
• Phoenix home prices will drop 58% from the peak
• Las Vegas will drop 56% from the peak
• Los Angeles will drop 53% from the peak
• Washington DC will drop 38% from the peak
• New York City will drop 33% from the peak
• San Francisco will drop 27% from the peak
• Boston will drop 26% from the peak
• Chicago will drop 17% from the peak

These are big drops and mean that many many home owners will be underwater in their mortgages. This will be felt for many people who needed PMI and only put down a down payment of 5% or 10%---But in many areas (Miami, Phoenix, Vegas, California)---even conforming loans and jumbo loans that were issued in 2005, 2006 and early 2007 will be underwater.

19 Years of Mortgage Origination Data 1990 - 2008

The Mortgage Bankers Association publishes quarterly data on the amount of mortgage originations for homes (1 - 4 family homes)

If you plot the mortgage data (See chart below) you will see the quarterly flows of mortgage orignations for purchase (Blue bars) and Refinancing (Purple Bars)---You can see that in 1990 & 1994 there was very little refinancing--due to high interest rates, and then from 2001 - 2008 just about every quarter saw a greater amount of refinancing than purchase mortgage financing

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Whenever you look at quarterly data it can be a little lumpy, so I transformed the mortgage data to be a rolling 4 quarter average (i.e. the data shown below in Q4-1990 represents the average data for Q1, Q2, Q3, & Q4-1990).

What you will see is that amount of mortgage originations for purchases peaked at Q1-2006 and mortgage refinancing peaked in 2003.

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In my estimation, if the Obama stimulus package is successful in lowering mortgage rates during the first half of 2009, you may see an increase in refinancing and purchase mortgage originations---But much like a python swalling a pig---eventually (1) everyone who could refinance will have refinanced their mortgage and (2) market rates will creep back up---That coupled with fewer homes being sold and dropping real-estate prices will cause the purchase mortgage originations to be dropping in 2010 and 2011 as well.

What do you think?

Jumbo Mortgage Refinance rates remain high

According to the Boston Globe:

Jumbo mortgage loan rates put damper on refinancing

Kerry and Rebecca Scarlott, shown in their Hingham home with their daughter, Meghan, and dog, Dory, refinanced their jumbo loan with two smaller loans. (John Tlumacki/Globe STaff)

By Jenifer B. McKim Globe Staff / January 5, 2009

While plunging mortgage rates have spawned a frenzy of refinancing, borrowers with larger, so-called jumbo loans are still seeing interest rates in the 7 percent range, prompting many to abandon refinancing plans altogether or resort to creative transactions.

The high rates are particularly an issue in Greater Boston, where expensive housing forces many people into jumbo-loan territory, which is currently $465,750 and above. In 2006, more than 10 percent of borrowers in Massachusetts took out jumbo mortgages.

Borrowers with conventional mortgages - those at or below $417,000 - are getting rates as low as 5 percent, while the national average for a jumbo loan hovers around 7 percent.

There is a new, third category of mortgages between jumbo and conventional loans, created last year by Congress, called conforming jumbos, which now average about 5.6 percent, according to a provider of industry data, HSH Associates.

"I think it is crazy you can't get as good a rate," said Julia Blake, 36, who with her husband is looking to refinance the Cape they bought in Wellesley for $695,000 in 2007. "To me, a jumbo loan should be a luxury house, and in Wellesley it is not. You can't get anything less than $600,000."

Another Wellesley resident, Paul Barnhill, wants to refinance his adjustable-rate jumbo loan into a fixed-rate loan, but not at current rates.

"I would refinance in a heartbeat if I could get 5 percent," said Barnhill, 44.

Jumbo mortgage rates are higher because lenders who initiate the loans are having trouble selling them on the secondary market, where the resale of mortgages provides funds for new loans. The banks and investment groups that buy mortgages are reeling from the credit crisis and the subprime mortgage debacle, and are steering clear of any loans that smack of higher risk. The major players on the secondary market, government-sponsored Fannie Mae and Freddie Mac, do not purchase jumbo loans.

Industry groups are calling on the federal government to intervene. For example, the Federal Reserve Bank is purchasing huge amounts of mortgages and related securities, which industry officials said would result in even lower rates for conventional loans. The National Association of Realtors wants the Fed to do the same with jumbo loans.

"It's unfortunate that the jumbo interest rates are very high and the government is not being responsive to that," said Lawrence Yun, the trade group's chief economist. "It is not only hurting the Main Street, but it's a fairness issue. Why are people who are slightly over the loan limit being punished?"

Last year, Congress raised jumbo limits when it allowed Fannie Mae and Freddie Mac to buy or guarantee higher-balance loans. In Massachusetts, the limit increased to $523,750, from $417,000, with jumbo loans being above the higher amount, and conforming jumbos between the two figures.

read the rest of the story here

Mortgage applications reach multi-year high

Here's an interesting article from bloomberg.

U.S. MBA’s Mortgage Applications Index Rose to Five-Year High

By Shobhana Chandra

Dec. 31 (Bloomberg) -- Mortgage applications in the U.S. last week reached a five-year high as borrowing costs slid.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose to 1,245.7, the highest level since 2003, from the prior week’s 1,245.4. The group’s purchase gauge climbed 1.4 percent and the refinancing measure fell 0.4 percent.

The drop in borrowing costs, sparked in part by the Federal Reserve’s plan to buy mortgage-backed securities, is the lone bright spot in a market plagued by record foreclosures and plunging home values. While lower rates will help owners reduce monthly payments, they have yet to stimulated sales, indicating the housing slump will persist for a fourth year.

“We’ve seen a bit of recovery in mortgage applications as borrowing costs are easing,” John Herrmann, president of Herrmann Forecasting LLC in Summit, New Jersey, said before the report. “The housing market has not yet reached a bottom. Sales and prices will continue to grind lower into next year.”

The Fed in November announced a program to reduce the cost and increase the availability of credit for homebuyers. Yesterday, the central bank selected four firms to manage a $500 billion purchase of mortgage-backed securities, to be completed by June. Only fixed-rate agency mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae are eligible assets for the program, the Fed said.

The mortgage bankers’ purchase index increased to 320.9 last week, from 316.5 the prior week. The measure reached an eight- year low of 248.5 in mid November and peaked at a record 529.3 in June 2005.

Refinancing

The refinancing gauge decreased to 6,733.8 from the prior week’s five-year high of 6,758.6.

The average rate on a 30-year fixed-rate loan dropped to 5.03 percent, the second-lowest level since records began in 1990, from 5.04 percent the prior week. At the current rate, monthly borrowing costs for each $100,000 of a loan would be about $539, or $91 less than the end of October, when the rate was 6.47 percent.

The share of applicants seeking to refinance loans slid to 82.9 percent of total applications, from a record 83.2 percent the prior week.

Today’s report also showed the average rate on a 15-year fixed mortgage decreased to 4.79 percent, the lowest level since March 2004, from 4.91 percent the prior week. The rate on a one- year adjustable mortgage dropped to 6.15 percent from 6.36 percent.

Mounting foreclosures and slumping sales are accelerating the drop in property values. Home prices in 20 major U.S. cities declined 18 percent in October from the same month last year, the most on record, the S&P/Case-Shiller index showed yesterday.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage originations.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net