Tuesday, August 19, 2003

How is it that mortgage rates are rising rapidly -- up over 100 basis points since June -- and yet the Homebuilders Association's housing index rose for its fourth straight month, hitting its highest level since December 1999? Justin Lahart at CNN/Money has some ideas.
First off, if the slowdown in mortgage activity is going to hit housing (or consumer spending, for that matter), it's going to happen with a lag . . .

Second, its important separate out mortgage refinancing, where people who already own a home get a more favorable rate on their mortgage, from mortgage purchases aimed at buying a home. According to the Mortgage Bankers Association new mortgage application has moderated only slightly since June and is still above where it was through April.
Good points. Let me offer a third.

The General's brother was in the market for a new home a few months ago, precisely to take advantage of the ultra-low mortgage rates. The General's banker kept delaying and delaying, slowing down the application process, asking for more information, ignoring phone calls, and the like so much that weeks went by before my brother finally gave up and went to find another banker. With rates rising since June, bankers have every incentive to draw out the application process as much as possible. The General heard a story on Marketplace (on NPR) a few weeks back on how lots of people who thought they had locked in the ultra-low rates found out later to their dismay that they hadn't locked in a thing. The banker gave them a quote, but one without guarantees -- of course, that was only stated in the fine print. The longer it takes to actually lock in the rate, the higher the rates go, the more money the banker makes.

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