Monday, July 30, 2012

Releases of deeds of trust fall in second quarter in spite of record-low interest rates

Today, the Division of Housing released its second-quarter 2012 report on releases of deeds of trust. Since release activity reflects trends in home purchase and refinance activity they can help us identify some trends in demand for home loans.

The report notes that, in general, release activity responds to movements in the mortgage rate in ways very similar to that seen in mortgage refinance activity.

The first graph shows the quarter-to-quarter changes in the 30-yr fixed mortgage rate and in the number of releases. The quarterly data goes back to 2008. Release activity tends to move in the opposite direction of trends in the mortgage rate. In general, the blue line will move above zero following a period in which the green line is below zero. So, after growth in the mortgage rate turned negative during the 4th q of 2008, release activity moved above zero, topping out at a growth rate of more than 50 percent. In other words, a dip in the mortgage rate produced a surge in release activity. A similar phenomenon can then be seen again following the third quarter of 2010, and then again following the third quarter of 2011. Note, however, that the increase in release activity gets smaller after each period of declining mortgage rates. The effect of pushing down the mortgage rate appears to be diminishing when it comes to release activity.

For example, during the second quarter of this year,  during a period of record-low mortgage rates, release activity actually fell from the first quarter to the second (the blue line is below zero):

Note that interest rates are at record-low levels. All things being equal, release activity would be extremely high.  The fact that release activity is so moderate, considering the mortgage rate, implies that factors like tight credit standards, consumer confidence, and weakness in the job market continue to affect real estate activity in the state.