Mortgage rates at lowest level in five decades, yet consumers slow to refinance
Despite mortgage rates dropping to their lowest level in five decades, consumers aren't jumping at the chance to refinance their loans or purchase homes.
Mortgage company Freddie Mac said Thursday the average rate for 30-year fixed loans sank to 4.58 percent this week, yet the number of people refinancing remains below early 2009 totals.
“We need a lot of help getting the word out,” said Eric Bradley, founding partner of Huron Valley Financial in Ann Arbor.
Mortgage rates are down from the previous record of 4.69 percent set last week and the lowest since the mortgage company began keeping records in 1971. The last time they were cheaper was the 1950s, when most long-term home loans lasted just 20 or 25 years.
“There are reasons why consumers are not bothering to at least call to check or inquire,” Bradley said. “People are concerned, thinking their house may not appraise or they’re concerned about credit issues or a second mortgage.
“The intuition is correct. There are lots of hindrances to being able to acquiring those rates, but there are some new programs out there even for consumers that have some decline in the property values. They are still able to take advantage of these rates.”
The Obama administration has launched programs to help borrowers refinance if they owe up to 25 percent more than their home's value and have their loans guaranteed by mortgage giants Freddie Mac or Fannie Mae.
About 291,000 homeowners participated as of March — a small fraction of the estimated 15 million homeowners who are "underwater" on their mortgages.
Still, aplications for mortgages rose nearly nine percent last week from a week earlier, the Mortgage Bankers Association said Wednesday. But they remain at only about half the level of early 2009 and a far cry from the refinancing boom of 2003 through 2005, when home prices were soaring and borrowers were able to pull equity out of their homes to pay for home renovations, boats and vacation homes.
“It’s a heck of a time to be out there (refinancing),” said Tom Richardson, CEO of Liberty Title. “We’re gearing up. We did a whole lot of refinances last year. It was our biggest year for refinancing since 2004. If people refinanced last year, they refinanced down to 5 3/8 percent. It would pay for them to come in again.”
And with figures from the National Association of Realtors released Wednesday, the low mortgage rates could help resuscitate U.S. home sales. The Pending Home Sales Index, which measures housing contract activity, dropped 30 percent in May based on contracts signed.
The housing market made strong gains in the three months prior to May’s drop as consumers took advantage of the homebuyers’ tax credit program. The program required contracts to be signed by April 30 and closed by June 30.
Congress approved a bill Wednesday to extend the deadline for closing to Sept. 30, granting up to $8,000 in tax credits for homebuyers.
“The process to get a loan approved is more time-consuming than it’s ever been, so I think they didn’t want to penalize people,” said Christy Perros, co-owner of Absolute Title in Ann Arbor.
Reuters and the Associated Press contributed to this report.
Brian Vernellis is a reporter for AnnArbor.com. He can be reached at 734-623-4617 or brianvernellis@AnnArbor.com.
Comments
JOhn
Wed, Jul 7, 2010 : 11 a.m.
After lengthy record digging and updating; finally this appraisal showed up at my house. He seemed nice. However, several days later, I learned my house which I paid $212k in 2002; is worth $120k now!! How does market drop so much? Can an appraisal be done first, so I can save the hassle.
TXteacher
Sun, Jul 4, 2010 : 9:30 p.m.
@ Saline Character- I said the same thing 30 years ago and guess what.... "I was outta there"! The sour economy in SE Mich has a looooong history!
Basic Bob
Sun, Jul 4, 2010 : 4:59 p.m.
It just doesn't make sense to refinance for less than one percent. Qualified people that have 5-1/2 percent loans are staying put.
Saline Character
Sat, Jul 3, 2010 : 2:23 p.m.
Yes, it's a GREAT time to refi, as long as you can meet the 80% loan to value max....hard to do these days after the housing collapse. I am underway, and my appraisal came in 9% above what I built it for.. 14 yrs ago!!! Incredible! But, I qualified! And I went with a 5yr ARM, saved over $300 / mo. Why a 5YR? Cause if things don't get substantially better in SE Mi in 5 yrs, I'm outahere, and so will so many more!
stunhsif
Sat, Jul 3, 2010 : 8:12 a.m.
I refied last april at 4.75 and had to come up with 10 grand to show 20% down and avoid having to pay PMI. I used up a big portion of my cash cushion but am paying 200 bucks less a month. Don't care what federal programs are in place, the banks have changed their practices and I don't blame them.
KJMClark
Sat, Jul 3, 2010 : 7:51 a.m.
I probably could refinance now, but I expect rates to keep going lower for a little while. It's looking more and more like we're headed for a double-dip recession. I still think it's just going to be a very weak recovery that will feel like a recession, but with the bad news from last week - durable goods orders down in May, auto sales down in June, construction spending down, S&P down 4% for the week, etc. - you have to wonder about falling back into recession. I'm not too worried about the paperwork, but then there are the closing costs. Ouch.
John Alan
Sat, Jul 3, 2010 : 7:15 a.m.
This is no suprise... The banks have reversed their criteria of giving up loans with little to none documentation to having tons and tons of requirment (some of them totally un-reasonable) which makes it very hard to re-fi or get new loans.... Given the drop in the property values, does not help either in satisfying the banks tough requirments so regardless of the interest rates.... it is hard to see much actions in this area.... Once we question the banks, they say FDIC is making them do this (finger pointing!!!).
Macabre Sunset
Sat, Jul 3, 2010 : 5:36 a.m.
The problem with the plan is that if you're under water, you can't get very close to the lowest rates, because only your original lender can refinance you. There's no competition for the loan. Add in closing costs, and the refinance actually hurts you financially. Whomever came up with this plan didn't think it through very well.