Monday, December 29, 2014

5 graphs for 2015: #5, mortgage refinancing

  - by New Deal democrat

As we start a new year, I thought I would give you a short list of things to watch for in 2015.

Here's number 5:  interest rates and refinancing

Interest rates are always important. They can be thought of as the ultimate driver of the economy.  Essentially they are telling us how much it costs to use money.  

Since 1982, no recession has occurred unless interest rates have failed to make new lows for at least 3 years. With wages generally stagnant, asset appreciation (stocks, housing) or the refinancing of debt at lower interest rates have driven much of the increase in consumption. Interest rates last made new lows in the summer of 2012, nearly 3 years ago.

To watch this, the most on-point graph is that of mortgage rates and refinancing activity, published weekly by Mortgage News Daily.  Here's what it looks like now:

As you can see, refinancing abruptly stopped when interest rates went up in summer 2013.  In the last few weeks, it has shown signs of a pulse again.

If interest rates continue to go down, refinancing should pick up again, as should the housing market. If interest rates back up, refinancing will stay dead, and the housing recovery will continue to stall.  And we'll be in the "red zone," with increased chance of a recession in 2016.