Wednesday, July 30, 2003

Perhaps the housing bubble chickens are finally coming home to roost.
The year's highest interest rates pushed down demand for mortgage refinancings in the United States to lows not seen since last December, an industry survey reported on Wednesday. . . .

Rates for 30-year loans, the most commonly used home mortgage, rose to 5.87 percent in the latest week from 5.72 percent in the previous week, according to the Mortgage Bankers Association of America.

"The 30-year contract rate is at highs not seen since December 13 of 2002 when it was at 5.91 percent," said Douglas Duncan, the trade group's chief economist, adding "there is no question we're past the peak (in refinancings)."
To the degree that the refi market was shoving piles of cash into the hands of consumers who then gleefully spent them at Home Depot, Lowe's, etc. and thus boosting consumer spending, this pillar of growth in the US is bearing no more weight. In fact, if consumer spending cannot at least tread water, this pillar may in fact begin to totter the economy overall as consumers concentrate on keeping up with their mortgage payments rather than buying that new car.

Just three weeks ago the MBAA refi index stood at 6768.3. Now its at 4145.8, plummeting to earth faster than Skylab. Tie this all in with the big unexpected drop in consumer confidence for July, and suddenly the two mainstays of the US economy over the last two years -- consumer spending and housing -- may be evaporating like the morning mist.

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