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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (39984)	7/30/2003 11:11:38 AM
From: Johnny Canuck	Respond to of 72303

Higher Rates Erode Demand for Mortgages Wednesday July 30, 8:41 am ET By Aleksandrs Rozens NEW YORK (Reuters) - The year's highest interest rates pushed down demand for mortgage refinancings in the United States to lows not seen since last December, an industry survey reported on Wednesday. ADVERTISEMENT The drop in demand diminishes the key support that housing has provided the U.S. economy in recent years. Rates for 30-year loans, the most commonly used home mortgage, rose to 5.87 percent in the latest week from 5.72 percent in the previous week, according to the Mortgage Bankers Association of America. "The 30-year contract rate is at highs not seen since December 13 of 2002 when it was at 5.91 percent," said Douglas Duncan, the trade group's chief economist, adding "there is no question we're past the peak (in refinancings)." Demand for refinancings as measured by the trade group's refinance index plummeted 32.9 percent to 4,145.8 in the week ended July 25. The refinancing index is at lows not seen since Dec. 20, 2002, when it hit 4,101.0. The purchase index, a measure of demand for loans to buy homes, meanwhile fell 3.5 percent to 426.9. Record home sales and refinancings have been an important support for a struggling economy in recent years because it encourages spending as owners outfit their new homes with furniture and appliances. Low rates have allowed many home owners to cut borrowing costs by refinancing their loan. Many homeowners have withdrawn equity from their homes with the help of cash-out refinancings and used the money to pay down debt or support spending on goods and services. "Obviously, there is a strong relationship between refi activity and mortgage rates. The refinance market is going to take a hit," said Richard Green, principal economist at Freddie Mac. At the same time, Green said there are factors other than low borrowing costs that drive demand for homes. "As to home buying, the market is more complex. It is not just interest rates, but about people's expectations about home prices in the future, the cost of rent and alternative investment opportunities," Green noted. "The stock market uncertainties will cause people to put money into the housing market." So, while higher borrowing costs are sure to drive down demand for refinancings, housing could remain strong. "There are still people refinancing. There are procrastinators, but the vast majority have done so," said Chris Low, chief economist FTN Financial. "They are coming in (to lenders) under the impression that rates are at lows and then obviously they are disappointed." Looking ahead, Low said home sales could jump in July as stragglers look to buy homes before rates rise further. "Some people will have rate locks they'll push to get done," he said, adding "you will see a rise in home sales, then activity should peter out pretty quickly after that." The Mortgage Bankers Association's Duncan agreed, pointing out that his greatest concern for the housing market is a "a rapid and substantial run-up in rates." Such a run-up -- to 8 percent -- in a very short period of time could not only evaporate demand for refinancings, but impact home sales, he said. As refinancings also peter out, the benefits to the economy will diminish. "In coming months, cash flow to homeowners will start to dry up," said Low. "Refis will be a negligible component of the economy if rates are at this level or higher by year-end."