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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: benwood who wrote (965)	5/8/2003 6:37:37 PM
From: gpowell	Respond to of 4904

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. In an environment of falling interest rates and zero transaction costs one would want to refinance continuously. Mostly what is evident in the statistics is that an adjustment to the boom of the 90’s high expectations has occurred over the last few years, whereby individuals have been lowering their expectations for future growth. This is evident in the behavior of interest rates and the demand for loanable funds. The adjustment process has a few effects, which I believe is reflected in the various statistics, depending upon whether the drop in output growth is seen as temporary, combined with individual’s preference to spread out both good and bad fortune over their lifetimes.

To: benwood who wrote (965)	5/8/2003 7:03:35 PM
From: Earlie	Respond to of 4904

Ben: Good comments. Once the refi game ends (and it sure appears to be heading over the hump) then we get into sudden death overtime for this nutbar market. Best, Earlie

To: benwood who wrote (965)	5/8/2003 8:09:39 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 4904

excellent post! I've gotten offers for a 2nd mortgage to take out up to 150% against value. How many people are playing that game to make ends meet? probably more than are tapping their IRAs and paying taxes and penalties to do it. another thing is people relying on ARMs even though long rates are at multidecade lows. even with low 15- or 30-yr rates, people go for the 6-month Libor recasts to maximize cash flow.

To: benwood who wrote (965)	5/9/2003 12:05:38 PM
From: Perspective	Read Replies (2) \| Respond to 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