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Title: Housing, mortgage industries could be in for another shaky year
Author: Groshan Fabiola
Article:
Despite all the positive forecasts predicting 2007 to be a
rebounding year en route to a thriving market in the near
future, more undeniable evidence mounts that suggests 2007 may
not be much better then its predecessor.
The housing industry basically relies on the mortgage industry,
especially as home prices have soared to never-before-seen
highs. If people are not applying for mortgages, they are not
buying homes, unless that mattress is full of thousand dollar
bills.
The article, "Home loan demand drops despite decline in mortgage
interest rates," posted February 7, 2007 on USA Today.com,
explains how investors and economists may have reason to worry
as a housing rebound probably is not in the near future.
Last year interest rates soared until it peaked at 6.88 percent
in late June. Then they fell to under 6.2 percent and
forecasters across the country began warning buyers to buy now
because the market was rebounding from its correction.
The first month of the new year, you know the year things were
supposed to begin heading in the right direction, has produced
interesting results about what the immediate future of the
overall real estate market will look like.
"The Mortgage Bankers Association said its seasonally adjusted
index of mortgage application activity, which includes both
refinancing and purchasing loans, dipped 0.2% the week ended
Feb. 2 to 630.1." That doesn't sound like a big deal but
considering the market is struggling to head in the right
direction, any mortgage origination decline carries extra
weight. "Phillip Neuhart, economic analyst at Wachovia in
Charlotte, N.C., said the housing market is going through a
'rocky stabilization' right now." "'The weather was certainly a
factor in December, particularly housing starts, but that
artificially inflated activity,' he said. 'Also, builder
incentives were helping sales.'"
The real reason the declining mortgage originations is
depressing is due to the fact interest rates also dropped last
week, which would ideally result in an increase in mortgage
originations.
"Borrowing costs on 30-year fixed-rate mortgages, excluding
fees, averaged 6.23% in the latest week, down 0.06 percentage
point from the previous week and the first drop since early
January." "'Housing seems to have the wind at its back with
long-term interest rates, which were already in the low- to
mid-sixes, falling slightly after last week's Fed announcement,
so it's surprising to see that purchase activity actually
tapered in the last week,' said Bob Walters, chief economist at
Quicken Loans, an online mortgage lender in Livonia, Mich."
It has also recently been reported in numerous publications that
interest rates are expected to rise to about 6.5 percent by
summertime. If mortgage originations are down while interest
rates are low and even declined, what will happen once rates
shoot up another 0.3 percent?
"'Folks with adjustable-rate mortgages see the opportunity,
however, and are refinancing into fixed-rate mortgages before
their existing mortgages reset to interest rates that are higher
than current long-term rates,' said Walters."
If you plan on refinancing you should do so now before rates
rise. The one thing that is important to keep in mind though is
that even though rates will rise during the summer that is also
the time when home buyers tend to come out of their shells and
become more active.
About the author:
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