Why Refi’s Are Good For The Real Estate Market
Recently I’ve written several posts that use the increasing rate of mortgage applications as statistical evidence of an improving real estate market.
Each time I do so, one of the primary replies is something like “of course that’s happening - but most of those mortgages are refinances, so it doesn’t really mean anything”.
My initial inclination was to assign some legitimacy to the objection. After all, if it’s only current home owners who are refinancing and not new buyers entering the market, then the current glut of housing on the market will never be cured.
But then I thought about it more thoroughly. And it turns out that purchase money mortgages have been only the increase. The mortgage numbers are being driven in large part by refinances, but that’s not the only part of the mortgage market that is expanding. There are more buyers in this market, and more of them are seeking home loans. That’s a good thing. But…
…let’s assume for a moment that the only action in the mortgage market was refinances. The premise upon which people object to my optimistic reaction to mortgage market improvements is this: “Mortgage refinances are neutral and don’t effect the real estate market either positively or negatively.”
For the record, the premise upon which the pessimists base their argument is fully incorrect.
It’s safe to assume that in nearly every case, a refinance means that a home owner is getting a better deal on their mortgage. And based on the number of adjustable rate mortgages that were scheduled to reset this year, it’s clear that many of those people are now refinancing into a better deal.
What has happened with the people who couldn’t refinance? Many of them have lost their houses to foreclosure, thus causing the real estate market conditions we face now.
What’s likely to happen to the people who are refinancing today? They’re likely to keep their properties, avoid foreclosure, and will therefore not contribute to further weakness in the real estate market.
Yes it’s true: Purchase money mortgages are good for the real estate market. But so are refinances. Good news is good news. And an improving mortgage market is good news.
Thanks for reading FreeRealEstateTraining.com!
Here's What Serious Investors Are Reading:
- Mortgage Applications Continue To Rise, Despite…
- More Positive Signs For Real Estate Investors and the Real Estate Market
- Deloitte Survey Of Home Buyers - Interesting Reveleation
SECURE & CONFIDENTIAL
Mortgage applications may be increasing, but how many of those applications are getting APPROVED and CLOSED (funded)? I am still hearing stories of lenders not showing up at closings (or worse — the lender’s check bouncing).
I want to see an itemized report from a reliable source showing approvals and actual closings, and for all of the different kinds of loans (fixed, adjustable, owner-occupied, non-owner occupied, single family, 2-4 residential units, etc.). That kind of information will go a long way to showing the market trend for this credit crunch.
Sorry, but you aren’t privy to an itemized list of that sort. That’s private information for each borrower. Sure, it’s possible none of these mortgages are closing. It’s also possible that all of the other information suggesting the solidifying of the real estate market is insufficient to convince you or anyone else. Fortunately, nobody really has to be convinced of what’s happening. It’s happening anyway. — Bryan Ellis
I did not ask for the borrower names, just the *kind* of loans that are closing. That information is not privileged, but it’s also probably not readily available because nobody thinks it’s important. *sigh*