Palo Alto Real Estate

Voltaire said, “Madness is to think of too many things in succession too fast, or of one thing too exclusively.” Many people are focusing exclusively on one thing these days – mortgage rates. That doesn't mean these people are going mad, but more than a few are pushing themselves to distraction.
It's understandable, given the recent surge in mortgage rates, which in some ways feels like sand passing through the fingers. The national average on the benchmark 30-year fixed-rate mortgage was 5.95% last week, according to Bankrate's survey of large lenders, while the benchmark 15-year fixed-rate mortgage averaged 5.37%. Both rates are up 30 basis points in the past week alone.
As it now stands, the 30-year fixed-rate loan is at its highest rate since Thanksgiving 2008, when it averaged 5.97%, but it's worth noting that this same loan was averaging 6.52% this time last year. It's also worth noting – and we've noted this many times over the past month – rates still remain low from a historical perspective.
Admittedly, the higher rates have slowed down activity. Application activity fell 7.2% for the week ending June 5, according to the Mortgage Bankers Association. It was the third straight week that mortgage activity declined. Refinancing activity, in particular, has been hard hit, plunging 11.8%. But the good news is that applications for purchases actually moved up 1.1%, supporting our contention that housing remains in a recovery mode.
More good news could be taken from foreclosure filings. RealtyTrac counted 321,480 filings nationally last month, a 6% drop from April. Lenders have resumed cracking down on delinquent borrowers after foreclosures were temporarily halted earlier this year. Renewed interest in proceeding with foreclosures will help clear the market of inventory. What's more, the problem is relativity concentrated. Ten states, led by California, accounted for 77% of the foreclosures reported in May.
The Whole Picture
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.