- Pennsylvania Rep. Chaka Fattah vows to fight federal subpoena
- Ron Paul: CIA spying is a result of a distrustful, big government
- Mike Huckabee: Opposing abortion is ‘how we save this republic’
- Obama pitches to middle class with overtime pay action
- Rep. Sheila Jackson Lee claims Constitution is 400 years old
- Unemployment, job creation top biggest problems in America: poll
- Twitter crashes for second time in nine days
- Charles Manson associate Bruce Davis granted parole
- Israeli warplanes pound 29 Palestinian sites in Gaza: ‘Direct hits’ confirmed
- Eric Holder to give thumbs-up to drop jail time for drug offenders
Mortgage refinancings surge amid record-low rates
The Federal Reserve touched off the biggest mortgage refinancing wave since 2009 last month by driving the interest rates on 30-year mortgages to record lows near 3.5 percent.
The Mortgage Bankers Association reported Wednesday that applications for refinances surged 20 percent last week, to the highest levels since 2009. The average rate on 30-year loans fell to an all-time low of 3.53 percent in the wake of the Fed’s move in September to purchase $40 billion a month of mortgage bonds to bolster the housing market and consumer spending.
The burst of activity on housing follows news Tuesday that auto sales in September surged to the highest level in more than four years and suggests consumers are getting a new wind after flagging earlier this year. Auto sales leaped to an annual rate of 14.9 million units and are up by 13 percent over last year. They also have been helped by the extraordinarily low interest rates that the Fed has engineered.
Other economic reports Wednesday added to a string of upbeat economic news this week, showing further expansion in the nation’s vast service sector and better-than-expected hiring by businesses last month.
The surge in mortgage activity vindicates predictions by Fed Chairman Ben S. Bernanke and flies in the face of numerous critics — including some inside the Fed — who did not expect the central bank’s controversial and aggressive mortgage purchase program to do much to help the economy.
On Monday, Mr. Bernanke noted that mortgage rates were nearly twice as high, at more than 6 percent, in late 2008, when the Fed launched its unprecedented campaign to drive long-term interest rates lower with bond purchases, and the drop is having the desired effect.
“Lower mortgage rates are one reason for the improvement we have been seeing in the housing market, which in turn is benefiting the economy more broadly,” he said before the Economic Club of Indiana. He also alluded to the boon for auto sales, noting that “other important interest rates, such as corporate bond rates and rates on auto loans, have also come down.”
Fifteen-year mortgage rates declined to a new low of 2.9 percent last week, while the rates on jumbo loans and mortgages insured by the Federal Housing Administration dropped to 3.82 percent and 3.37 percent, respectively. Even the average rate on five-year adjustable-rate loans — short-term rates that were not targeted in the Fed’s action — sank to a new low of 2.59 percent.
The association reported that applications for loans to purchase homes also rose by 4 percent last week and are running 11 percent over last year’s levels, suggesting that the Fed’s move also is accomplishing Mr. Bernanke’s stated goal of reinforcing this year’s budding recovery in home sales.
But critics are still not convinced that the Fed campaign will have a lasting impact.
Tom Porcelli, chief U.S. economist at RBC Capital Markets, said the current refinancing wave, while the best since 2009, still has a long way to go before it rivals the historic wave of 2003 which saw more than 15 million mortgages refinanced.
While rates are extremely low, consumers are still having a hard time getting banks to approve their applications because of today’s much stricter credit standards, and many people who own homes that are “under water” have been unable to refinance at all because they have no equity in their homes to show the bank.
Mr. Porcelli said that even in the highly unlikely scenario that mortgage rates fall further to around 3 percent, “the absolute most this would add to annual” economic output is 0.2 percentage points.
“The economy has not responded as hoped,” he said. Unemployment has hovered stubbornly above 8 percent, but “America’s fiscal position has grown significantly worse with government debt climbing to unimaginable territory,” he said.
“Despite the lack of results, the conclusion at the Federal Reserve is that the programs were too small and too incremental to be effective,” he said. “They have determined that something larger, and potentially permanent, would be more likely to do the trick.”
Mr. Schiff charged that the Fed is indulging in a bout of “dangerous amnesia” the ignores the role such loose-money policies played in spawning the housing bubble and debt catastrophe of the last decade. He predicted that the latest spate of easy-money policies also would end badly.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
About the Author
- Administration sees crisis in Ukraine as opportunity to pass IMF reforms
- Employers add 175K in February; unemployment rose to 6.7 percent
- Chevron scores court win in $9B Ecuador rainforest case
- Moscow shakes up the financial world
- Siberian shale find fuels Russia's fracking future
Latest Blog Entries
TWT Video Picks
By Emily Miller
Obama is losing the debate on gun ownership, concealed-carry permits
- Oil rig worker says he saw missing plane go down: report
- GOP bill tries to pull courts into fight with Obama on executive power, enforcing laws
- MILLER: Law enforcement realizes good people with guns deter crime
- Redskins' secondary holes remain unfilled amid NFL free-agent frenzy
- F-35 secrets now showing up in chinas stealth fighter
- Ben Carson: America's now 'very much like Nazi Germany'
- NRA shirt gets N.Y. high school student suspended
- Ukrainian PM accuses Putin of wanting war
- Malaysia: No debris in area shown on China images
- Critics point to Obama's attempts to sell health care as no laughing matter
Chaos as Manhattan building explodes
Pope Francis meets his 'mini-me'
Celebrity deaths in 2014
Winter storm hits states — again