An article published today in Bloomberg News (http://www.bloomberg.com/news/2010-09-29/u-s-mortgage-applications-index-falls-even-as-rates-decline-to-record-low.html ) confirms a continued decline in the rate of mortgage applications “led by a drop in refinancing even as mortgage rates declined to the lowest on record.” And refinancing constitutes in excess of 80% of the current total pool of mortgage applicants. (http://www.bloomberg.com/apps/quote?ticker=MBAVREFM:IND )
As for rates, the average 30 year fixed rate mortgage has fallen to 4.38% from a rate of 4.94%, a year ago, when home prices were close to a perceived bottom as ‘savvy’ investors and speculators rushed in to buy up bank-owned foreclosed properties. The average 15 year fixed, over the same time frame, has fallen from 3.88 to 3.77%. Both rates represent the lowest on record going back to 1990, some 20 years ago.
At the same time, “reports last week showed sales of existing homes in August were the second-lowest in more than a decade; and, those of new homes were the second-lowest in records going back to 1963.”
So, what does this tell us from a macroeconomic/aggregate point of view? By and large ‘demand’ is not there for the prospective sale of your home. And so, if you have been waiting and hoping for some rebound in home prices to get you out from under your mortgage at a price anywhere near where you may have purchased at or near the top in 2005-2006, it is simply not going to happen; and the above data confirms that salient fact. And the further reality is that we are seeing home price appreciation regress to the historical mean/average. As this writer previously noted in “Getting Out From Under Your Mortgage—The Case for Efficient Breach” (09/20/10):
“And so, what have houses appreciated, adjusted for inflation, and what is that average rate of appreciation going all the way back to 1890? “Using data compiled by Shiller (2005), the real rise in home values between 1890 and 2005 has been 86.3%, with roughly 75 percentage points of the increase occurring [just] since 1995. Over the 115 years, this [constitutes] an annual real appreciation rate of 0.54%, or approximately 3.25% per year nominally.” (Emphasis added.) Freddie Mac Working Paper #05-02, ‘Reversion to the Mean…etc.’, fn. 5, Amy Crews Cutts, Frank E. Nothaft, Nov. 2005. (http://www.freddiemac.com/news/pdf/fmwp_0511_housingpricegrowth.pdf)
The S&P/Case Shiller report released yesterday, 09/28/10, has confirmed home prices have only appreciated 3.18% over the past year. (http://www.bloomberg.com/apps/quote?ticker=SPCS20Y%25:IND)
© 2010 Riordan J. Zavala, Esq. All rights reserved.