Mortgage Seekers Still Hanging On

Although interest rates have been creeping upwards over recent months, mortgage borrowers seem to be shrugging them off as the price they have to pay if they are to own a home in these days of uncertainty. Consumer news and business channel, CNBC reported that a survey conducted by the Mortgage Bankers Association (MBA) found that, despite interest rates having risen to their highest level in early November, the number of those applying for mortgages rose 6.2% over the previous week. If compared to a year ago, new purchase loans have risen 19%. Two other interesting trends are unfolding. Owner-occupied mortgage financed home sales are once again representing the lion's share of property closings replacing total cash investment purchases.

This despite the fact that the average interest rate paid during the period was 4.18% for a mortgage with an 80% loan to value (LTV) ratio. The other fact to be noted is that while credit scores for those seeking purchase loans remains historically high, with a FICO rating of 755 reflecting the average in October, scores for those receiving refinance loans have fallen. During a period in which the number of ReFis has risen for the third straight month, borrowers receiving refinance loans last month had an average score of 726. To put both in perspective, the median consumer credit score for the same period was 722.

The New York Times reports that refinancing activity has generally risen in the past several months and represented 42% of lender's volume of loans in September, an increase of 5% over August, and the highest share since May. The question of why there is such an increase in the number of homeowners deciding to refinance their homes may have the same as answer as that of why cash investors are no longer putting their money into property. That answer is a general anticipation of an imminent interest rate increase.

A higher interest rate would give those with money on hand better places to invest it than in real estate. At the same time, higher interest rates also make refinancing a less advantageous move for homeowners. As if confirming this general malaise as to interest rates, the MBA study found that only 5.4% of borrowers had taken out an adjustable rate mortgage (ARM), a historically low share considering that the ARM interest rate was only 3.18% that week. If one takes all of the above into account, it is easy to arrive at the conclusion that home buyers taking out mortgages hanover and other places remain risk-averse, preferring a bird in the hand to two in the bush.