There's no place like home?

Mortgage applications plunged to their lowest levels since December 2008 (down 15.8%) while refinancing activity dropped 23.3% this past month. The obvious culprit = rising 30 yr rates from banks. As TSM stated before, its a consensus opinion that any rate above 5% for a 30 yr mortgage or refi SERIOUSLY dries up the housing interest. Couple that with the fact that the first-time home buyer credit expires at the end of November 2009 and you have a situation where even if housing does bottom, the existing inventory may well sit there for long periods of time. That means a very slow housing recovery, along with depressed (altho maybe now accurate) home prices. So maybe the surge in new home starts and building permits last month ISNT a good sign?

What else - well think about what drives mortgage rates. They typically have a 150 basis point spread against the 10 year treasury. Nowadays its closer to a 200 basis point (2%) spread. Rates have jumped last month on (1) belief that the market is recovering and people are moving into stocks that offer higher returns, so treasury rates have to go up to compensate and be appealing; and (2) belief that federal government measures are inflationary and may be so in the midterm future. It appears that both of those underlying currents are ahead of their time and may back track. So rates could be heading below 5% again. Recently, they hit 5.72% and today they stand at 5.36%. I don't know, but even if it does go back down, I'm not sure sub-4% is in the cards and so I think housing could be a slow drudge. Which only hinders the economic recovery that much more.

PS, also keep in mind that recent bank "profits" came partially from refi activity. Doesn't look so good for them going forward now.