By Nick Timiraos, Wall Street Journal, February 6, 2014
Average mortgage rates fell to the lowest level since mid-November last week as unease over economic growth in the U.S. and market turmoil abroad drove investors to load up on government bonds, pushing down long-term interest rates.
The average rate on a 30-year fixed-rate mortgage was 4.47% last week, down from 4.52% the prior week, the Mortgage Bankers Association said Wednesday. Mortgage rates are tied to yields on the 10-year Treasury note, which closed at 2.64% on Tuesday amid market jitters.
But the moderate decline in mortgage rates hasn't yet triggered any meaningful gain in home-loan refinancing. Applications for refinancings were up 3% from a week earlier but remain at extremely low levels. Refinancings accounted for 62% of loan applications last week, unchanged from the prior week.
Market strategists say that rates would need to ease to about 4% from their current levels in order to provide any lift to refinancing. Rates remain almost a percentage point above their lows of May 2013, when they fell to 3.6%.
"We are eyeing 4.0% on the primary mortgage rate to be a bellwether for increased originator supply," said Walter Schmidt, an analyst at FTN Financial in Chicago.
The Mortgage Bankers Association estimates that refinancing volume will total about $440 billion this year, down from $1.1 trillion in 2013. That would be the lowest level of refinancing since 2000.
Mortgage rates jumped more than a percentage point last June, as investors grew anxious over the Federal Reserve's plans to unwind its bond-buying campaign. The rise in rates ended an unusually long refinancing wave that had generated huge profits for U.S. banks. It also led to a pullback in home sales during the fall.
Mortgage applications for home purchases fell 4% last week on a seasonally adjusted basis and stood 17% below their year-earlier levels, an indicator of falling demand for homes. The small declines in rates in recent weeks could serve as a tailwind to the housing market as the spring buying season gets under way.
Banks may be able to see refinancing drop by a smaller-than-expected margin if rates stay low and more borrowers find that rising home prices have restored equity, making it possible to refinance. Many borrowers have been shut out from refinancing because their homes have dropped in value, though a series of government programs have enabled more borrowers to refinance. But analysts don't expect refinance volumes to come anywhere close to their levels of the past few years.