Mortgage Applications are Following Mortgage Rates, No Housing Recovery

Mortgage Bankers Association's regular survey of mortgage applications showed a 17 percent spike last week. Tracking tightly a sharp decline in mortgage rates last week, mortgage applications continue to follow rate trends.

30-year fixed rate mortgages dipped to around 6 percent from nearly 6.5 percent a week earlier. However, recent spreads in yields have bounced the same 30-year mortgage up to 6.5 percent for this week--expect a trickling off of mortgage applications again.

This is simply confirms that housing markets are not roaring back. Rather borrowers and cautious refinancing homeowners are watching for any signal to lock in that lower fixed rate. Many of these borrowers are still attempting to exit pending rate adjustments or treacherous option ARMs.

Refinancing activity is still consistently around 45 percent of the mortgage financing activity.

Despite the climb, mortgage applications are still off 30 percent from one year ago. There is still little hope in sustained recovery in the housing market while housing prices continue to register historical drops and lenders are reluctant to compete on rate for new mortgage borrowers.

The FOMC meeting yesterday ended in a 0.5 percent cut in the Fed benchmark rate--sending it to a historic 1 percent low. The US markets went into wild gyrations following the announcement ending with the Dow down 74 points and mortgage rates up for the day.

Lesson: Fed rates cut does not equal decline in mortgage rates.