Current Mortgage Rates Spark Upturn in Housing Activity

According to the Mortgage Bankers Association, home purchase loan demand rose for the third straight week last week. Is this, at long last, a sign of life for the housing market -- and for the economy at large?

Current mortgage rates, which have continued to decline, were cited as a factor in the uptick in loan demand, but there may be more to it than that. Significantly, the Mortgage Bankers Association breaks loan demand down into purchase and refinance categories. With current mortgage rates at record low levels, it means that refinance rates are also extraordinarily low. Refinancing a house at today's refinance rates is a no-brainer -- for most people, it means taking a financial obligation they already have, and making it less expensive.

Purchasing a home, however, is a different matter. It means taking on a new financial obligation. While current mortgage rates are lower than ever, the fact is that mortgage rates have been extremely low for over a year now. So perhaps it isn't mortgage rates that have changed so much as people's willingness to think long-term. While economic uncertainty persists, current mortgage rates combined with the housing slump make this a once-in-a-lifetime opportunity to buy a house at reasonable cost.

As long as those home buyers and their lenders are making responsible decisions -- i.e., affordable, fixed payments -- then this optimism is a good sign for the economy. Now, if that optimism would only extend to business owners, and get them to dip into their cash hoards and start hiring and investing, you might see real progress in the economy.

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