A quick note on the Mortgage Bankers Association's release this morning on weekly mortgage applications. Here's the opening of Bloomberg's account:
The Mortgage Bankers Association's index of applications to buy a home or refinance a loan rose to 841.4 from a revised 817.7 a week earlier. The group's refinancing index increased 6.5 percent, while the purchase gauge dropped 4.5 percent.
This is great news for a lot of household balance sheets. The big picture problem over the last two years has been falling real estate values, which have unleashed all sorts of ugly second- and third-order effects in the financial markets. The small picture problem is household cash flow, people simply being able to afford their monthly payments.
Our view is that residential and commercial values must fall further, much further in some places, in order to reach any sort of sustainable equilibrium (i.e., a base for reasonable rates of future price appreciation). But where foreclosure can be avoided by squaring households' monthly cash flow with their debt service, we'll all be better off. If lower mortgage rates and the attendant refinancings help push the system in that direction, we'll have a better chance to muddle through all this with a little less damage.
Courtney Schlisserman, "U.S. MBA’s Mortgage Applications Index Rose 2.9% Last Week," Bloomberg, December 17, 2008