Mortgage Rates Hit Record Low While Purchase Applications Plummet

Last Updated May 21, 2010 6:28 PM EDT

Mortgage interest rates fell on Friday to a new 50-year record, a low of 4.6 percent for a 30-year fixed-rate mortgage. Fifteen-year fixed-rate mortgages fell to somewhere around 4.19 percent. (Remember that banks add fees and other costs to these loan amounts.)

Earlier this week, the Mortgage Bankers Association (MBA) announced in its weekly Mortgage Purchase Applications Survey on Wednesday (May 19) that mortgage purchase applications "had plummeted," despite record-low interest rates:
"Purchase applications plummeted 27 percent last week and have declined almost 20 percent over the past month, despite relatively low interest rates. The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season. In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009," said Michael Fratantoni, MBA's Vice President of Research and Economics. "However, refinance borrowers did react to these lower rates, with refi applications up almost 15 percent, hitting their highest level in nine weeks."
(It's interesting to note how much mortgage interest rates fell since Wednesday, when the MBA's weekly survey was released.)

Borrowers who applied for a refinance made up more than 68 percent of the total number of loans, a big jump over the prior week.

The real question is this: What's going to happen to home sales for the rest of this Spring and into the Summer? My prediction is that we've pushed forward a whole lot of sales, so we're going to continue to see a big drop-off, just as more foreclosures will be coming onto the market.

I've spent much of this past week in Atlanta, talking to a number of people who are underwater with their mortgages and are unable to sell:
  • One person is spending $16,000 a year to keep paying the mortgage on a property that's worth $70,000 less than she paid.
  • Another wants to sell and buy another home, but there is no interest in his neighborhood.
  • A third woman says she believes her home value is still dropping and wonders if there is anything she can do.
  • Another woman told me that a new builder has come into her subdivision (her builder went bankrupt) and is building homes for $100,000 less than she paid for hers - and they are selling.
There's clearly a lot of inventory out there. And, we had a really lousy new unemployment claims report this week to boot. There aren't any easy answers. But, I really wish there were.

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com.
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    Ilyce R. Glink is an award-winning, nationally syndicated columnist, best-selling book author, and radio talk show host who also hosts "Expert Real Estate Tips," a Internet video show. She owns and operates several websites including ThinkGlink.com, ExpertRealEstateTips.net, LawProblems.com, and HouseTask.com, as well as Think Glink Publishing LLC, a privately held company that provides consulting services as well as editorial content and video for companies and non-profit organizations. An in-demand speaker, she appears frequently on CNN, CNBC, NPR, and in local media outlets across the country.

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