By Don Miller
The government’s efforts to put a floor under the U.S. housing market and halt a withering onslaught of foreclosures appeared to bear fruit yesterday (Wednesday), as a bevy of news indicated the housing sector might be stabilizing.
Leading the way was a report from the Mortgage Bankers Association that U.S. mortgage applications soared 32% last week, as record low interest rates spurred a surge in demand for home refinancing loans. Refinancing accounted for 78.5% of all applications.
“The housing market is coming back, but not roaring back,” Leif Thomsen, chief executive of Mortgage Master in Walpole, Massachusetts told Reuters. He said his company is doing more business now than ever, with over $1 billion in total mortgage lending since the beginning of the year, 85% of which has been refinancing.
The refinancing activity comes after a spate of government actions in its ongoing efforts to reduce mortgage rates to stimulate borrowing and boost the U.S housing market, currently in the throes of the worst downturn since the Great Depression.
After the Federal Reserve said last week it would buy Treasury securities for the first time in more than four decades, as well as more than double its planned purchases of mortgage-related securities, interest rates on mortgages tumbled.
The average rate on a 30-year fixed-rate loan fell to 4.63%, the lowest level since the bankers group began records in 1990, from 4.89% the prior week. At the current 30-year rate, monthly borrowing costs for a $200,000 loan would be about $1,028, or $138 less than a year earlier, when the rate was 5.74%.
“The drop offered a sizable refinance incentive for most homeowners, sparking a pick-up in refinance activity,” Orawin Velz, associate vice president of economic forecasting at the MBA in Washington said in a statement, according to Reuters.
New government rules put in place by President Obama’s Homeowner Stability Initiative, designed to help more consumers with little or no home equity refinance through Fannie Mae (FNM) and Freddie Mac (FRE), also are helping to keep mortgage rates low.
“The government has sown all the seeds needed to see a protracted refinancing wave,” New York-based Barclays Capital PLC (ADR: BCS) analysts wrote in the report yesterday, according to Bloomberg News.
Sales Rising, Inventories Falling
The good news continued with a Commerce Department report showing purchases of new homes in the U.S. unexpectedly rose in February from a record low, as plummeting prices and the cheaper rates moved buyers off the sidelines.
New home sales increased 4.7% to an annual pace of 337,000 up from 322,000 in January, the report said. Meanwhile, the median sales price fell 18% from 2008, the biggest year-over-year drop since records began in 1964, as the glut of properties on the market dwindled.
In another hopeful sign, inventories fell even as sales of new homes were down 41% from last year. The seasonally adjusted number of new homes for sale dropped to 330,000, and supplies fell to 12.2 months from 12.9 months, based on current sales rates.
The highest jobless rate in a quarter century has limited demand for new homes, leading analysts to believe any housing rebound will be slow and deliberate even as steps to cut borrowing costs and reduce mortgage defaults kick in.
Meanwhile, the Fed followed through on its war on high interest rates by executing the first of $300 billion in Treasury purchases, targeting notes maturing from 2016 to 2019. In the next eight days, the central bank plans to buy debt maturing between 2011 and 2039, according to the tentative schedule released by the New York Federal Reserve Bank.
It was the first time since the 1960s that the Fed bought Treasuries as a tool to lower interest rates.
Typical mortgage rates will probably remain between 4.5% and 4.75% for the rest of 2009, Credit Suisse Group AG (ADR: CS) analysts in New York wrote in a report yesterday, according to Bloomberg.
But other analysts had doubts about the long-term effects of the Fed’s buying spree.
“Over the short-term, the Fed purchases of Treasuries will lower rates, but the need to issue over $2 trillion in securities over the next 18 months will make this less than effective,” Mark MacQueen, who helps oversee $7 billion as co-founder of Sage Advisory Services Ltd. in Austin, Texas, told Bloomberg.