Mortgage rates ticked up, but homebuilders should be okay | Mt Kisco Real Estate

 

Mortgage rates are the lifeblood of the housing market, which is why Bernanke and the Fed began conducting quantitative easing (or QE) in the first place. Lower rates allow homeowners to refinance, which increases their disposable income and helps stimulate economic growth. Lower rates enable first-time homebuyers to move out of an apartment and into a house, which means higher consumption (and good things for home improvement retailers like Home Depot and Lowe’s). Consumption accounts for some 70% of the U.S. economy, and consumption has been depressed since the housing bubble burst. The Federal Reserve would prefer to keep rates as low as possible for as long as possible.

 

Mortgage rates rise as the ten-year bond falls

The average 30-year fixed-rate mortgage rose 7 basis points as the ten-year yield increased 15 basis points, and TBAs sold off. With the refinance boom over, originators are overstaffed and cutting prices to drive business. We’ve seen a number of small originators go out of business, as they found themselves unable to compete in a purchase-driven mortgage market. The purchase market is fundamentally different from the refinance market in that it’s driven by relationships and not price. Last week, we heard from the biggest banks in the mortgage business, and every one reported drops in origination activity of 30% to 40%. Margins are getting squeezed as bankers compete for business.

The confirmation of Mel Watt as FHFA Chairman might give originators a break, as he’s expected to endorse further government homeowner assistance, which could mean an extension of HARP (Home Affordable Refinance Program) eligibility dates. This could trigger a new refinance boom.

 

http://finance.yahoo.com/news/mortgage-rates-ticked-homebuilders-okay-170018801.html