Dec 10, 2010

Rise in mortgage rates have dampened refinancing

The rising mortgage rates have snuffed out a refinancing boom which began earlier this year. According to the government backed mortgage firm,Freddie Mac's survey, the rate of a 30 year fixed rate mortgage averaged 4.61% this week which is the highest since June24th.

The Wall Street Journal says that a host of factors have helped drive rates higher, most recently including this week's tax compromise between President Obama and congressional Republicans. The package includes some measures to stimulate the economy and will likely result in higher budget deficits—both of which are anathema to bond investors.

Since the increase in mortgage prices, refinancing has become unattractive to more than 5 million borrowers. Mortgage Bankers Association said earlier this week that its index for refinancing activity fell last week to its lowest level since the early June. Refinancing activity surged between April and the early fall, as Treasury yields tumbled from 4% to less than 2.5% and mortgage rates fell from more than 5%. After the surge in rates, refi activity is down 42% from its peak in August.

However the good news is that the rise in rates have not effected the steady increase in home purchase activity. According to the MBA, new mortgage origination rose last week, but its still down more than 12% from a year ago. The team of analysts at PrivoCorp suggests that this steady increase in home purchase is a sure indicator that the economy is slowly improving. PrivoCorp processes loans and we do not originate loans.

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