The Whole Picture

June 16, 2009 · Dean Rizzi

Yes, mortgages rates have risen substantially over the past three weeks, and we can’t be sure when, or even if, they will come down. Mortgage rates are important, to be sure, but they are only part of the equation. Income and relative home prices matter too. On that front, average hourly wages continue to show incremental increases, while home prices continue to stabilize, and even rise, in many parts of the country.

Distinctions matter as well. Much has been made of the fact that lower interest rates mean more money in the pockets of borrowers. More money in the pockets of borrowers, in turn, means more money to spend to stimulate the economy. But let’s not forget that it’s a two-way street: The lender on the other end receives less income; thus, he has less income to spend. In other words, refinances with no equity extraction are really a wash in terms of aggregate demand for goods and services.

Mortgages used for purchases are another matter. If the house purchased already exists and the seller pays off a mortgage of the same or greater amount of the mortgage taken out by the purchaser, there is an increase in aggregate demand of brokerage and other fees collected in relation to the sale. If the house being purchased is a new one, then there is a net extension of credit and the value-added in the construction of the home is an addition to aggregate demand. In short, purchase mortgages have the greater ability to stimulate the economy, and the good news is that we continue to see an increase in purchase mortgages.

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Filed Under Important Thoughts

Tags: Conforming loans, Interest rate

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Comments

6 Responses to “The Whole Picture”

Larry Franzella on June 16th, 2009 3:09 pm

Hi Dean,
Great post.
Larry
Brian Boisson on June 17th, 2009 9:05 am

Dean,

There are always two sides to a story and borrowing responsibly is always important.

Thanks,

Brian
Adam Chinn on June 18th, 2009 4:15 pm

Dean,
Thanks for giving us your prospective on what’s going on with today’s mortgage picture. It is a two way street and I’m sure the trend for increase purchase mortgages will continue.

Adam
Dean Rizzi on June 21st, 2009 11:41 am

Thank you for your comments…. I have seen continued demand this past week… a few of my borrowers have been outbid on properties they put offers on.
Michael Monozon on June 22nd, 2009 3:17 pm

Hi Dean
credit is such a necessary part of our economy, and its value to all of us is so apparent in the housing industry. start with the land purchase and end with the food we put on the table, credit is evident all along the chain. We are all spoiled a bit by the easy and inexpensive credit that was available in recent years. Interesting that the cause of the problem is also the solution, maybe that means it is the abuse of credit not the credit itself. Or is it that simple?
Dean Rizzi on June 23rd, 2009 12:24 pm

It’s been well documented Wall Street did not properly disclose the risks involved with some of the mortgage instruments they were selling. Clearly, we in the industry reached a point where we thought the lenders were being overly aggressive and darn right foolish in their lending practices. It all comes down to disclosure…