Mortgage rates in the US hit a 50-year low last week, but it has failed to produce a series of refinancing activity and loan origination that some analysts had predicted.
The average 30-year fixed-rate mortgage dropped to 4.57 percent last week, the lowest record since the government-owned mortgage company Freddie Mac started collecting data in 1971. US borrowing costs have also fallen as investors concerned about the current financial condition have piled into the US Treasury bonds, pushing yields down.
“Normally with rates so low, you’d expect to see a bonanza of new originations,” said Frank Nothaft, chief economist at Freddie Mac. However, the opposite is happening. The number of new loan applications have dropped 30 percent in June compared with April.
While refinancing mortgage has climbed to a new 13-month high last week, the number of borrowers trading remains below the historic level. It is more than double than the number of borrowers refinanced in early last year, said Jay Brinkman, chief economist at the Mortgage Bankers Association.
This means that there were fewer homeowners who took advantage of the low interest rates to take out a new loan, in addition to the growing number of borrowers who owe more than the worth of their homes.
“Those are the primary reasons why people are not taking advantage of the lower rates,” said Sanjiv Das, chief executive of CitiMortgage.
The National Association of Realtors indicated in its May survey that 40 percent of loan contracts have been delayed, renegotiated or cancelled due to low appraisals.