Wednesday, November 17, 2004

We're back, back in the refi groove.

According to the Mortgage Bankers Association, refinancing activity as a portion of total mortgage activity ramped up last week to 48.6%. This is the highest level for refi activity since mid-April. Total mortgage activity is only slightly below (-3.8%) that mid-April mark.

In the bubbliest of US housing markets, use of ARMs has gone through the roof. Last week Freddie Mac told us that rates on one-year ARMs shot up to 4.16%, 20 basis points higher than two weeks prior, so time is of the essence. Yet clearly nobody is all that concerned with rising interest rates. If interest rates are going to stay low for the forseeable future (and the market clearly believes that they will), why not replace the 5.3% 30-year fixed-rate mortgage you hauled in last summer with a shiny new 4.2% 1-year adjustable-rate mortgage?

Sure you're betting that rates next November will be lower than 5.3%, but you're an American so you're both [1] optimistic and [2] in a betting mood. Plus you don't save any money, so you need to suck more equity out of your house to keep up with the Jones' (who are doing the same thing).

Way back in February 2004, Alan Greenspan curiously urged Americans to dump the fixed-rate mortgages they had just jumped on not more than a year earlier and switch into ARMs. He was trying to squeeze one more round of refinancing-cum-consumption out of the US economy, and we seem to be following straight down that path still today.

P.S. Apologies to anyone who, by my opening line, was compelled to endure flashbacks to Ace Frehley's truly terrible 1979 self-titled album.


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