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Well folks, for those of you who attempted and failed to reach a loan officer to inquire about refinancing, it's a safe bet that if you try again today, you'll reach a loan officer immediately.
Statistics don't lie. Refinance volume is down by 75 percent from the historic high in May 2003. That's pretty big drop. What happened?
For one thing, rates have certainly edged up. I did a little research on the internet and found some interesting statistics. The modest rise in rates cannot possibly be solely blamed for such a dramatic decrease in volume. Let's look at some numbers.
Back in mid-June, when rates were at their lowest, one probably would have been able to lock into a conforming 30-year fixed rate mortgage somewhere between 5.25 and 5.50 percent with no points. Today, the same 30-year fixed rate mortgage might cost you somewhere between 5.75 percent and six percent.
That's only one half percentage difference. It doesn't make sense. Sure, a lot of folks locked in at the right time. These lucky homeowners have no reason to refinance today. Since refi volume is down by 75 percent from the all time lows, does this mean that 75 percent of all American homeowners locked in to a rate somewhere below 5.75 or six percent? Definitely not. I did a bit of more research …
Generally speaking, from August 2002 to May 2003, 30-year fixed rate mortgages were bouncing between 5.50 and six percent. During this period, interest rates hit the high range three times -- early September 2002, early December 2002, Mid January 2003 and mid-March 2003, During these periods, mortgage rates were very close to, if not higher than today's market rates.
Let's compare the refi volume during those periods with today's activity. Remember that interest rates were at or above today's levels:
- Refinances are down 52 percent from September 2002;
- Refinances are down 32 percent from December 2002;
- Refinances are down 59 percent from January 2003;
- Refinances are down 69 percent from March 2003.
Why were so many more homeowners refinancing back then when today's rates are the same? I have two theories:
"Pigs get fat, hogs get slaughtered." Mortgage rates quickly dropped to their lowest levels in March and June. By the end of June, rates had popped right back up again. I think there are a lot of folks who missed that window and are waiting to catch the bottom. Even though these folks could benefit from refinancing to today's rates, they're waiting for lower rates. My message to them: Don't try to catch the bottom of a falling sword -- you could get cut.
The "herd" theory. As soon as rates started edging up last summer, it was all over the news -- "The refi market is over." Rates shot back up quickly and fiercely. The problem is that the media failed to mention that the spike in rates moved up to a previous level that initially sparked the refi boom.
My theories are unscientific. But the stats are correct. My advice to homeowners is to revisit your mortgage rate and compare it with today's available products. My guess is a lot of folks can save some money.
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