Low Refinance Rates, Rising Prices Make Refi More Appealing

Rising home prices will put more people in a position to refinance their homes. Rising mortgage rates will create a stronger sense of urgency. Put these things together, and you have all the ingredients for a mini boom in the refinancing market.

Okay, so it will be more of a swell that a surge. Whatever you call it, we will likely see a short-term rise in mortgage refinancing applications, as home buyers race to lock in today’s low refinance rates.

MBA: Refinance Index Rises Again

We are seeing this already in the application numbers reported by the Mortgage Bankers Association (MBA). The MBA’s refinance index has risen the last four weeks in a row.

During the week of March 27, the refi index rose 8% over the previous week. Earlier this month, the index shot up 15% over a one-week period, reaching its highest level since mid-January of this year.

Freddie Mac: Average Rates Hover in Mid 3% Territory

On March 28, 2013, refinance rates were averaging 3.57% in the 30-year fixed category. The 15-year FRM averaged 2.76% for that week. This is according to Freddie Mac’s weekly survey of the mortgage market.

Industry analysts have predicted the benchmark rate could top out between 3.7% and 3.8% by the end of 2013. This creates a sense of urgency among homeowners interested in refinancing. Today’s refinance rates are among the lowest we’ve seen in history, but they probably won’t go much lower. In fact, Freddie Mac’s chief economist, Frank Nothaft, recently predicted a gradual rise in rates over the coming months.

Despite minor ups and downs, refinance rates have clearly risen since the start of this year. During the week of January 3, 2013, the average rate for a 30-year fixed mortgage was 0.23% lower than it was this week. If predictions hold true, it could rise by another 0.23% (or more) by the end of the year.

Rising Home Values Will Make Refinancing Possible for Many

Rising interest rates are creating a sense of refinance urgency among homeowners. Rising home prices will put more people in a position to qualify for refinancing. Stated differently, property appreciation will remove some of the equity obstacles created by the housing crash.

According to the latest release of the S&P/Case-Shiller Home Price Index, home values are rising in most parts of the United States. The 20-city composite index for annual price trends rose 8.1% in January, compared to the same time last year. This exceeded industry expectations.

Prices seem to be rising fastest in the cities that were hit hardest during the housing crisis. For example, home values in Phoenix, Arizona rose 23.2% from January 2012 to January of this year. Prices in San Francisco, another city hit hard by the housing crash, have climbed 17.5% during the same 12-month period.

Currently, there are plenty of homeowners who want to finance, but cannot qualify due to low or negative equity. The current trend of rising prices will erase this problem for many.

Disclaimer: This article makes forward-looking statements about refinance rates and other aspects of the housing market. These statements represent the ‘best guesses’ of industry analysts and forecasters. Thus, they should not be interpreted as facts. We make no claims, guarantees or assertions about the future of mortgage refinance rates, or other housing-related conditions.