With average 30-year mortgage rates falling by 17 basis points over the past two weeks to a four decade low of 4.21%, mortgage application volume for purchases in the U.S. fell 8.3% last week and is running 37.1% lower on a year-over-year basis (versus 32.4% lower two weeks ago) according to the latest Mortgage Bankers Association survey.
Purchase Mortgage Volume Down 32.4% YOY And Refi Activity Slips [SocketSite]
Mortgage Bankers Association Applications Survey: 10/08/10 [mortgagebankers.org]

17 thoughts on “Rates Hit Four Decade Lows And Purchase Activity…Declines”
  1. agree with above.
    housing correlates better with employment and income than it does with interest rates, although interest rates are important.
    given that, it is unsurprising that this year’s purchase activity is worse than last year’s… last year we had stimulus-related uptick in economy and this year the economy is falling into the doldrums again.
    also: the so called “foreclosure gate” problem continues to worsen and not improve. This will negatively impact sales and the above mortgage purchase app data because it will be harder to get a mortgage on a foreclosed upon property.
    lastly: there may be people who are waiting to buy until the effects of QE2 are known. as Jimmy’s post indicates, why buy now when rates may be lower in November?
    but in the end, the biggest issue is the economy. hard to pull the trigger on an expensive purchase with debt if you don’t have a job or if your job security is low.
    too bad our leaders still focus all their energy making sure the bankers make obscene bonuses while ignoring the economy.
    I’ll be interested to see where future mortgage rates go. on the one hand, QE2 should ease rates. on the other hand, there are huge clouds hanging over the MBS market right now. I can’t imagine investors will be eager to buy MBS given the uncertainty. That said, the govt will likely just have to guarantee all MBS or something, since they enjoy guaranteeing all the toxic sludge from Wall St and pass the costs on to the taxpayers.

  2. Lower prices is the key.
    Who cares if your rate is 2% if a house is priced at 1M and you make 100K a year. People are not as reckless as in 2006. Sure you will buy with an artificially low payment, but what will the rates be when you sell?
    If you sell in 2020 and rates are at a more normal 7%, then your potential buyers will take that into account. They won’t care what your original payment was, but how much THEIR payment will be.
    In general, looking at a payment only is short-sighted. What matters most is the debt burden you put on your family.

  3. lol – not sure I agree with you on that. If you buy a house and plan to live there a long time (10 plus years), the thing that matters most is what your monthly payment is going to be, assuming you have the down payment and post closing liquidity needed to get the loan and buy the house in the first place.

  4. “Purchase Activity…Declines”
    Oh so easy to cite other data or not look too closely.
    Here in SF sales of homes/condos/tics 1/1/09 thru 10/13/09 = 3135 vs. the same time period this year with 3513 sales.
    From 7/1/09 to 10/13/09 = 1446 vs 1202 this year.
    So more purchases this year but slower yoy late in the year. Why? Pent up demand drove late 2009 sales and early 2010 sales. Meanwhile right buyers have two strong incentives to wait – one is interest rate drops show no sign of stopping, and all the waiting is causing price drops. In other words, the longer you wait the better the deals get in two ways.
    And the result of all that waiting? It is creating pent up demand once again and that will once again cause a flurry of buying activity when interest rates finally hit bottom.
    You all keep thinking this is a jobs problem, but 90% of SFers have jobs and there are a TON of buyers out looking. They’re all just have two incentives to wait right now.
    Of course to some extent the pent up demand is already in action – 854 places in contract right now when all of October 2009 had 459 recorded sales.
    [Editor’s Note It’s funny what a little stimulus will do and what happens when it’s taken away. Listed sales are currently running 13 percent below last year’s levels while recorded sales were down 12 percent in August year-over-year.
    But we will agree with one thing, prices do seem to be going down.]

  5. The bunk,
    After 10 years you won’t have paid much of your principal. Therefore the price you can get is essential.
    Historical rates are over 6%. We WILL eventually come back to these rates one day. If inflation has made your house value high enough, you could be more than OK. If it didn’t, you’re in trouble, because your buyers will have a similar paycheck than today but rates shrunk their purchasing power.
    Today’s situation is extreme. The risks are significant to bet on future rates and inflation when you are in the middle of an outlier. Always buy as cheap as you can even if the salesman says you can afford it thanks to low rates…

  6. Homes sold in September were down 30% YOY according to redfin. It’s getting worse.
    [Editor’s Note: Redfin’s number for San Francisco sales is down 14% in September.]
    [Editor’s Note Redux: And we just realized we blew it, the 14% percent drop per Redfin was for single-family homes, for all property types it was in fact 29.9% lower in September.]

  7. “It is creating pent up demand once again and that will once again cause a flurry of buying activity when interest rates finally hit bottom.”
    Yes, the pent-up demand is obvious from the increasing inventory and declining sales figures. But just wait til rates drop from the current 4.2% to 4.0% — then the floodgates will open!
    Comparisons to 2009 — the depth of the Great Recession — do not impress anyone. The one thing that undeniably continues to be absent is demand, pent-up or otherwise.

  8. “lol – not sure I agree with you on that. If you buy a house and plan to live there a long time (10 plus years), the thing that matters most is what your monthly payment is going to be”
    Only if you’re not good at finance. I would much rather pay 10% on a $400K home than 4% on a $1M home, just like I’d much rather pay 8% on a $500K home instead of 5% on a $800K home. Same initial interest paid in both cases, of course.
    Debt burden matters, even if payments are similar. This is elementary: if you put an extra $500/month towards your mortgage, you will much more quickly pay off a loan with lower principal. You would also require a lower downpayment, so you’re not putting in cash to a relatively low earning investment.
    “And the result of all that waiting? It is creating pent up demand once again and that will once again cause a flurry of buying activity when interest rates finally hit bottom.”
    People who are good at math refi because interest rates are low. People who are bad at math buy because interest rates are low. There are many reasons to buy a house, but interest rates are not usually a good one. Low interest rates only encourage people to buy beyond their means.

  9. Yes, I know the arguments, of course it is better to buy at a lower price assuming higher interest rates in the future will bring prices down, but you can not “know” what will be the scenario when you want to sell. If the assumption is “prices are going down”, then waiting always makes sense. I don’t have the confidence that anyone can reasonably predict what mortgage rates will be in the future because this is totally in the political realm at this point. Elections will determine those outcomes as much as anything else.

  10. Yes, of course there is pent up demand. It’s similar to how there’s pent up low unemployment and pent up healthy economy.

  11. Homes sold in September were down 30% YOY according to redfin. It’s getting worse.
    [Editor’s Note: Redfin’s number for San Francisco sales is down 14% in September.]
    [Editor’s Note Redux: And we just realized we blew it, the 14% percent drop per Redfin was for single-family homes, for all property types it was in fact 29.9% lower in September.]
    They are interesting numbers, I couldn’t find the breakdown on Redfin. But presumably,if SFHs are only down 14% but overall is down 29% then therest (condos/TICs?) must be way way down – 40% + or something..?

  12. Prices of SFRs have fallen to the point that the few potential condo buyers that there were can now buy an SFR. That means condo prices will have to fall much further to suck away demand from SFRs, which will then drop even further, etc.
    Time is your friend.

  13. “SFHs are only down 14% but overall is down 29% then therest (condos/TICs?) must be way way down – 40% + or something..?”
    For MLS numbers, SFRs sales are down 6.3% YOY and condo sales are down 18.4% YOY, with overall sales down 13.0%. I’m interested in what the DQ numbers will say.

  14. Prices aren’t going anywhere until the tidal wave of foreclosure activity clears
    “Foreclosure filings were reported on 347,420 U.S. properties in September, an increase of nearly 3 percent from the previous month and an increase of 1 percent from September 2009. A record total of 102,134 bank repossessions were reported in September, the first time bank repossessions have surpassed the 100,000 mark in a single month.”
    http://www.calculatedriskblog.com/2010/10/realtytrac-record-repossessions.html

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