Mortgage Rates and Applications See Unexpected February Decrease

By Kyle Chezum Updated on 3/2/2011

The Mortgage Bankers Association reported a significant decrease of about 6.5% in demand for home purchase and refinance mortgages this past week.  The drop occurred despite an unexpected recent downward trend in mortgage rates, which continued to decline last week from about 5% to 4.84%.  With rates this low, the soil should be ripe for refinancing activity, but both home purchase loans and refinance loans have decreased, leaving many experts and economists stumped.

Russell Price, a leading economist with a major financial firm in Detroit, said, “The housing market is still fragile.”  This sentiment is shared among many finance professionals.  The leading opinion?  Housing sector recovery won’t happen any time soon.  The economy, at least as far as real estate is concerned, faces a long, slow turnaround.

Donald Tomnitz, CEO of D.R. Horton, one the nation’s largest home construction firms, offered his own outlook.  “I don’t see anything in ‘11 that’s going to make ‘11 better than ‘10,” he said.  “We need job growth, we need consumer confidence and we still have issues with qualifying people with tighter mortgage underwriting.”

These opinions stand in stark contrast to the optimistic prospects voiced by Warren Buffet just days ago.  Buffet may not be out of line, however, as reports released today show that the private sector added 217,000 new jobs in February, far outpacing analysts’ predictions, which pegged last month’s likely increase around 165,000.  This news of positive employment growth could have a significant impact on consumer confidence in the months ahead.  Buffet may be proved right in the long run.

Still, there’s no question that uncertain still reigns supreme in the housing market.  Time will tell whether or not demand for funding in the form of home purchase and refinance loans will return.