Refinancings haven’t been so scarce since Lehman Brothers imploded
Last week, applications for refinances made up 40.1% of all mortgage applications, according to the Mortgage Bankers Association, the lowest share since September 2008.
That was the month when the financial crisis boiled over: Lehman Brothers was allowed to fail, credit markets seized up, Fannie Mae and Freddie Mac were rushed into government protection, and big banks collapsed, merged, were bailed out, and changed their business models.
Mortgage rates had been on the move for some time before the crisis, though. The Federal Reserve, realizing that its interest rate increases of 2004-2006 were popping the subprime housing bubble, backtracked and started slashing rates in 2007.
Throughout all of 2007, the 30-year fixed-rate mortgage averaged 6.34%; in 2008 it averaged 6.03%. But that was nothing compared to what lay ahead as the Fed implemented several rounds of monetary easing to encourage borrowing and stimulate the economy.
The benchmark mortgage rate dipped below 4% for the first time in October 2011. That encouraged a fresh surge of refinancings, which had abated a bit earlier that year. And then they just kept falling: 2016 marked the lowest full-year average for rates ever.
Rates TMUBMUSD10Y, -1.03% have marched higher for several months, and many analysts believe the long wave of refinancing may be finally coming to an end. It’s been a great experience for homeowners, many of whom have refi’ed several times throughout the past years, allowing them to spend more on discretionary items, rather than interest.
Read: Over a million Americans may have just lost their shot at refinancing
It’s been a mixed blessing for banks, which can’t make as much money when there’s a depressed spread between short- and long- term interest rates, and when all rates are as low as they have been. Still, the flow of refinancings have meant business for their mortgage departments.
And more importantly, a lower share of refinances is a signal of a higher share of purchase mortgages – and that’s a reflection of a healthier housing market.
Read: Housing’s big question — what will happen when buyers think 4% rates are ‘crazy’