To: Les H who wrote (98981 ) 5/2/2001 11:40:48 AM From: Les H Read Replies (3) | Respond to MORTGAGE TALK: Mortgage applications for home purchases rose again after two weeks of declines and refinancing activity rose for the first time in five weeks. Last week, the Mortgage Bankers Association's index on mortgage applications for home purchases rose to 309.8 versus 290.5 the previous week and is slightly above the one-year average of 306. Mortgage applications rebounded after falling in each of the previous four weeks. The index rose 12.7% to 2203.7 from 1954.9. Homeowners holding out for more Fed rate cuts before refinancing may have been moved off the fence by the Fed's intermeeting rate cut on April 18, which resulted in a brief dip in the 30-year mortgage rate which has since been reversed. Approximately $750 Bln of mortgages might get refinanced this year, possibly beating1998's record pace. However, refinancing activity appears to have leveled off after surging in the first quarter. Still, refinancing applications continue to account for the majority of overall mortgage applications (52%). It is important for home purchases to stay strong as it speaks to consumers' perceptions about confidence and income growth. After all, it takes little in the way of confidence to refinance an existing mortgage. It is entirely another matter for consumers to engage in the purchase of a new home. If weakness in home purchases emerges, this lack of responsiveness would indicate that interest rates would have to be lowered aggressively in order to spark the degree of responsiveness necessary to revive the economy. Importantly, however, the recent jump in the refi index will help to liquefy consumer balance sheets and ultimately aid the economy. Indeed, in the refinancing boom of 1998-1999, consumers tapped into their home equity to the tune of $55 Bln, putting most of it back into the economy and paying off debts with the rest. Just as with the recent jump in issuance of corporate bonds, here again is another example of the process by which the Fed's rate cuts will ultimately lead to stronger economic growth and is a clear illustration of the Fed's actions in motion. Mortgage applications should continue to be watched closely to gauge the economy's responsiveness to lower rates. In Japan, for example, the lack of responsiveness (lending has fallen for 3 straight years) required that rates be brought down to zero.bondtalk.com
