Mortgages rates fell for the second week in a row last week, perhaps demonstrating the power of the Fed’s programs to ease mortgage rates.
The average thirty-year rate fell considerably, from 5.32 percent to 5.2 percent. The average fifteen-year rate now rests at roughly 4.69 percent.
The move downward in mortgage rates has led to a significant uptick in mortgage applications. The Mortgage Banker’s Association reported an increase in its index of mortgage activity of roughly 11%. The bulk of this increase came from refinancing activity, through purchases of new homes also increased significantly.
Mortgage rates had been climbing in May, as concerns mounted that large levels of government debt would fuel future inflation rates. As the unemployment rate shot up to 9.5%, however, concerns over an over-heated economy seemed profoundly misplaced.
While demand for homes has been sluggish on both the New York and national level, questions have been asked of how much is attributed to the difficulty of buyers being able to find affordable financing. If the trend of the past two weeks continues during the next several months, a major impediment to a full economic recovery will have been removed. Such a recovery, of course, would still be subject to a rebound in the labor market, which has continued its sharp decline.
The Fed’s plan involves the purchasing of roughly $1.25 trillion in mortgage-backed securities. While there is the little direct effect of this program on the New York real estate market, some economists doubt a national economic recovery can occur without such a plan in place.
The fed also predicts its key interest rate will stay below .5% for an extended period of time. A continued low rate at the fed will be a strong boon for both the national and New York real estate market.
In all, though the national economic news of the past two weeks has pointed towards a further prolonged, deep recession, developments in the financial sector suggest that the national housing market will be rebound without the impediment of high mortgage rates.
Especially with Goldman Sach’s return to high profitability, it would seem the story of the economy is no longer that of a housing bust creating a finance bust creating a recession. Instead, the national economy, like the New York City real estate market, is now largely at the mercy of the national labor market.