Mortgage Applications Dip

From Reuters.com - "Mortgage applications dipped before Fed move: MBA":

Applications for U.S. residential mortgages slipped from lofty levels last week as homeowners slowed refinancings ahead of expected federal action to lower housing costs, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell for the first week in four, dropping 8.2 percent to 1,143.8 in the week ended January 2. A week earlier, it hit a five-year high.

A potential cause (not quite so sure the average borrower is this informed):

Borrowers may have slowed applications in anticipation of the Federal Reserve's program to purchase up to $500 billion in mortgage-backed securities, which is aimed at lowering rates lenders charge to consumers, an MBA economist said. The Fed began its purchases on Monday, fueling a sharp drop in premiums that investors demand to own the bonds, and by extension, a probable drop in mortgage rates this week, analysts said.

What are the rates doing?

Fixed 30-year mortgage rates averaged 5.07 percent in the week, up from 5.03 percent the prior week, according to the MBA's survey. The rate has plunged from 6.47 percent at the end of October, mostly after the Fed announced its intentions.

The usual foolishness, not looking at the big picture. Gotta get a 4.5% interest rate. 5.0% rates are not good enough. This notion is fine as long as something unexpected doesn't drive those rates higher. Obviously not expected but, when you have 5.0% money, you should be shouting from the rooftops with glee. In the Real Estate business, you don't need to hit home runs, preventing major mistakes is far more important:

"With all the talk the Fed is buying (MBS), rates could drop further and (borrowers) may say, 'Why not wait a little more'" before refinancing, said Orawin Velz, associate vice president of economic forecasting at the MBA.

Where we should be headed with rates and its impact on housing (no guarantees):

Average 30-year fixed rates are headed toward, or below, 4.75 percent, compared with 5.1 percent in a recent Freddie Mac survey, Tony Crescenzi, chief bond market strategist at Miller Tabak & Co., said in a client note on Tuesday.

The plan to lower mortgage rates is seen as one of the most promising federal plans to stabilize the housing market, which is in its worst downturn since the 1930s. But because lending standards have tightened across the industry, many troubled borrowers will not be helped no matter how low the rate.