For the eleventh straight week, the 30 year mortgage rate, as reported by Freddie Mac, set a record low, in a series going back to 1971. It now stands at 4.32%.
Confoundingly (at least to real estate shills), the lowest rates in almost forty years have done little to spur demand for houses. The Mortgage Banker’s Association survey of purchase applications increased only slightly, up 1.8%. The refinance index was up 2.8%. Refinances constituted nearly 83% of the total mortgage application activity. The National Association of Realtors reported that its pending home sales index increased slightly from July (up 5.2%), but was still down over 19 % from a year prior.
And why all this flat to declining economic activity, even given the lowest mortgage rates in decades? Drum roll please…..Prices!
The S&P/Case-Shiller Index reported that prices rose again last quarter, 4.4% over the previous quarter, and 3.6% over the year-earlier levels. See what I meant in previous posts about prices coming down by other means? The government is dead-set against allowing any nominal, across-the-board decrease in home prices. But prices wish to decline. For a financed asset, price declines can be either the result of nominal price declines or cheaper money. It matters not. It is the same principle whereby the Fed believes it can juice economic performance by lowering the Fed Funds rate. For the woefully oversupplied housing market, it is clear that price declines will come through money cheapening, not from decreases in the actual purchase prices. Which is why we are on our way to zero percent financing in real estate. Wait for it. It’s coming soon to a neighborhood near you.