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Strategies & Market Trends : Heinz Blasnik- Views You Can Use
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To: benwood who wrote (965)5/9/2003 12:05:38 PM
From: Perspective  Read Replies (2) of 4904
 
<A more relevant statistic to me is the ratio of the principal of the new mortgages to the old mortgage balances. This number is perhaps at an all-time high now (at least back through 1997). This ratio has steadily risen from around 0.95 when the bubble burst to 1.24 now. Also, take a look at the mean age of refinanced homes -- when the bubble burst, this was 6.4 years; in the latest quarter it was 1.9 years.>

I think that 1.24 ratio is a ratio of interest rates. The Freddie piece shows the shifting motives of refinancing; when the >5% balance numbers are highest (early Y2000), people were doing refis to cash out their "capital gains", not to lower rates (there was a period when people were actually doing refis at *higher* rates, on average, indicated by that ratio dropping below 1.0)

When rates are falling quickly, then you see that ratio increasing well above 1.0, indicating the motivation to refi is to capture the lower rates.

I think you have to have BOTH 1&2 occur for refis to stop; in other words, if there are rapid real estate price increases -or- substantial further interest rates decreases, people will find economic reason to refinance. Either one is sufficient economic motive to refinance.

The amazing thing to me is the sheer volume of this entirely non-productive activity - at the recent peak, refis comprised 95% of mortgage originations. That industry is going to collapse when it returns to its original business of financing actual real estate transactions.

BC
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