Wednesday, May 26, 2010

Mortgage Refinance Activity

by Bill McBride on 5/26/2010 11:33:00 PM

With the recent decline in mortgage rates, the Mortgage Bankers Association (MBA) has reported an increase in refinance activity. But so far the activity is far below the levels of early 2009 even though mortgage rates are at about the same level.

This is because most people who could refinance already did last year ...

Refinance Activity and 10 Year Treasury Yield Click on graph for larger image in new window.

This graph shows the weekly MBA refinance activity, and the Ten Year Treasury yield (Note: Using the 10 year to approximate moves in mortgage rates).

Every time the 10 year yield drops sharply, refinance activity picks up. But notice what happened at the end of 1995. The Ten Year yield dropped, but the increase in refinance activity was muted. This was because mortgage rates didn't fall below the rates of a couple years earlier - and many people had already refinanced at those lower rates.

The same thing is happening now, and although activity has increased, there will only be a huge surge in refinance activity if mortgage rates fall below the rates of 2009.