Mortgage Demand More Sensitive to Rate Changes

I am getting through a backlog of stories, articles, research, and data surrounding the Christmas holiday. Last week, Reuters reported that mortgage applications, as measured by the Mortgage Bankers Association, fell by a seasonally adjusted 12.3% for the week ended December 14. As Reuters writes....

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 12.3 percent in the week ended December 14.

The MBA's seasonally adjusted index of refinancing applications fell 13.8 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 4.8 percent, dropping from its high point on the year.

The refinance share of total mortgage activity fell to 83 percent of applications from 84 percent the week before.

Fixed 30-year mortgage rates averaged 3.50 percent in the week, up three basis points from 3.47 the week before, which was the lowest in the history of the survey.

The rise in rates came even with the Federal Reserve's announcement last week that it would purchase more Treasury securities each month.

 

 

If anything, the rising sensitivity of consumer to changes in rates is probably one of foremost threats to the nascent recovery in US housing. Just look at the chart of the average 30-year mortgage in the US.

 



We are not talking much of an increase here. What would happen if rates instantly increased by 50 basis point? 100 basis points? 200 basis points? Could the Federal Reserve act to contain that sort of increase and if they attempted to at what cost? These sort of rate increases are not of the realm of possibility. In any event, something to watch.