What saddens me is what got us in this mess, is just repeating. The Fed is going to push down rates, and play the same game that we did in 2002-2003 - hope in due time housing rebounds so overstretched consumer can eventually recapitalize their growing debt (which they are now pushing onto credit cards) back into their homes. Its like a drug addict, going back to the same well over and over to scratch that itch. However it will be less effective each time.
This now appears to be happening (Realmoney.com subscribers only); and why I kept saying during the fall, forget the inflation talk - they will keep cutting rates so we can go through "Liquidity Boom 2.0". The problem with this (ahem) "solution" is most who bought in 2006-2007 will find their house now appraised for less than they bought ... and with many people entering housing with 0-5% down, that means they have nothing to refinance. And as each month passes and housing prices continue to fall in many markets, this will extend to more and more people. Further, lending standards have tightened dramatically so fewer people will be able to even qualify, even WITH equity. So with that said, there will be those who bought in 2003-2004 (and earlier) who can refinance, and it will help offset some of the problems. But I think for many it is just too late as the combo of home prices falling below what they already owe + tighter qualification for lending (over and above "you have a heartbeat? You're in for $450k!) will lock them out. However, I do find it ironic (and troubling) that the way to get out of this mess, is to return to what got us in the mess the first time around. But I guess it's the least evil solution, from a drawer of bad solutions. But as I keep repeating, it is much like a drug addict, each iteration of this credit game has less and less effect... but hey, here we go again...
- The average 30-year fixed-rate conventional mortgage rate has probably fallen to about 5.40% or less this week, which marks a big drop compared to just a month ago when it was 6.20%, according to data released each Thursday by Freddie Mac. This puts mortgage rates at their lowest since March 2004, when housing was booming.
- Mortgage rates are now also not far from their low for this decade, which was set in June 2003, when the average 30-year fixed-rate conventional mortgage rate fell to 5.21%. At that time, mortgage refinancing levels soared to unprecedented levels
- At current levels, more than 70% of the mortgage universe is "refinanceable," as the average rate paid in the U.S. is 6.14%, according to data from Bear Stearns. A "refinanceable" mortgage is defined as one that is at least 40 basis points below current mortgage rates. This could mean that as many as 7 million mortgages will be refinanced.
- Increased levels of mortgage refinancing will contribute to an eventual recovery in consumer spending, albeit less so than in the past, owing to the decline in home equity and the current weakness in the economy.
- New data released earlier today by the Mortgage Bankers Association indicate that mortgage refinancing activity soared in the week ended Jan. 18 to its highest level since April 2004.
