Which Mortgage Applications are More Important – Refis or Purchases?
As Chart 1 shows, mortgage applications for refinancing purposes have plummeted in recent weeks as applications for purchases appear to have bottomed and entered a very mild uptrend. With regard to aggregate demand, which category of applications – refis or purchases – should we get more excited about? For my money, purchases. Why? If a refi because of lower mortgage rates does not involve the cashing out of equity, the net effect is simply a redistribution of spendable income from ultimate lenders to ultimate borrowers. Yes, with the lower mortgage rate, the borrower now has lower monthly payments and, thus, more left over for the purchases of goods and services. But the ultimate lender on the other side of the transaction now has lower monthly interest income and, thus, less nominal income to use for the purchases of goods and services. So, refis due to lower mortgage rates with no equity extraction, that is, no net new extension of credit, are a wash in terms of aggregate demand for
Related Questions
- What can I expect from the application process now that Tennessee is only accepting mortgage applications online through the NMLS, both as a company and an originator?
- Can a lender lock-in the expected average mortgage interest rate on applications that are taken prior to January 1, 2009?
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