Last week we mentioned early signs that the new Fed bailout scheme, to buy up to $600 billion in MBS was actually working a little. Mortgage rates did drop immediately, prompting anecdotal evidence of a rush to refinance. Now the Mortgage Bankers Assocation has the numbers:
The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending November 28, 2008, which was a shortened week due to the Thanksgiving holiday. The Market Composite Index, a measure of mortgage loan application volume, was 857.7, an increase of 112.1 per cent on a seasonally adjusted basis from 404.4 one week earlier. On an unadjusted basis, the Index increased 51.4 per cent compared with the previous week and was down 21.9 per cent compared with the same week one year earlier.
“Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship,” said Orawin Velz, Associate Vice President of Economic Forecasting. “When rates plummeted following the Fed’s announcement that it would buy GSE debt and MBS, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound.”
The Refinance Index increased 203.3 per cent to 3802.8 from the previous week and the seasonally adjusted Purchase Index increased 38.0 per cent to 361.1 from one week earlier. The Conventional Purchase Index increased 37.4 per cent while the Government Purchase Index (largely FHA) increased 39.2 per cent. All results include an adjustment to account for the Thanksgiving holiday.
So what does this mean: Well for one thing, there’s a little bit of bubble mentality left if homeowners who regret missing out the last time feel compelled to rush out this time, though it’s completely rational to refi if there’s clearly a chance to save money. This alone won’t reflate the housing market, but at the margins, lower payments means more money for other stuff (like credit card payments and student loan payments) as well as a lower likelihood of default.