Lower home prices still attracting buyers despite uptick in interest rates

by Coldwell Banker Evergreen Olympic Realty, Inc. on June 3, 2009

The Mortgage Bankers Association (MBA) reported today that demand for home loans dropped this week as mortgage interest rates climbed over the past couple of weeks.

The stock market is likely to take this as bad news; however, a more detailed review the numbers actually tells a fairly positive story about the housing markets continued improvement.

The MBA report combines both purchase and refinance loans. All of the drop in mortgage activity is attributed to a drop in refinance activity. Purchase loans, on the other hand, actually rose during the past week.

This is an indication that the drops in home prices around the country are having a much stronger impact than mortgage rates when it comes to bringing buyers back into the market.

Buyers know that it takes a much steeper hike in mortgage rates than that seen over the last week to wipe out the benefits of buying when prices are down by double digit percentages. Because home prices across the country are moderating back down to sustainable levels, purchase mortgage demand remains strong.

Buyers simply look for value when purchasing a home. Recent surveys of home owners and buyers show that the vast majority believe buying a home is a good investment again. They believe that prices have come back to levels that should lead to sustainable appreciation in the years to come. This fact has a stronger impact on buyer sentiment than do relatively modest adjustments in interest rates.

As for refinances, they were bound to slow down. Even if interest rates remained flat, there is only so much refinancing that can occur – and a lot has occurred. Locally, most title companies report that fully 75-85% of their business has been as a result of refinance activity since the start of the year.

Yet the refinancing has been healthy for the housing market. By making payments more affordable, refinances have reduced the amount of distressed properties coming on the market. This has kept the supply-side of the equation in check.

Thurston Countys inventory of homes has remained stable since the start of the year, hovering around 1,550 homes for sale. Last year, inventory shot up 46% from January to May, which is a more typical pattern of inventory growth during that time of year.

Keeping the inventory from rising has been very important because our demand is still lower than our current levels of supply. To find better balance, the market will see prices continue to adjust downward. As they do, we will see purchase mortgage applications continue rise and our market return to better health for the long-haul.

Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.

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