A confluence of trending in the refinancing sectors indicate an economy that is still lackluster, but shows borrowers are tidying up their books and banks are building value with generously low rates.
30 year fixed mortgage rates still at historical lows
The average percentage rate on mortgages dropped again this week to 4.45%. Financial experts contribute this to an overall decline in growth in the new home sector and slow consumer spending. The glut of foreclosed homes on the market and unemployment trends continue to bedevil recovery, and this may be a key factor in current low interest rate trends. In effect, lenders can do nothing but sit and wait for a better financial climate, like everyone, as market stagnation dictates the current lending environment.
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Borrowers capitalizing on refinancing; saving money
Regarding all of the recent mortgage wheeling and dealing, refinancing accounts for some 70% of all mortgage movement. Lenders are eager to post new profits and push old, bad debt off their books. Experts agree that while this is a positive trend in the short term, the viability of "apple for an apple, apple for pear" economy isn't long term, as lenders continue to put a Band-Aid on a bruise.
Borrowers, on the other hand, are taking full advantage of this sluggish economy to pay down old debt. By some estimates, borrowers have repaid nearly 70 billion+ in outstanding, revolving debt this year. Economists agree this is another positive trend that can largely be attributed to the freed-up cash that comes with refinancing.
Unemployment still a huge question mark
The economy shows other signs of life, as 114,000 new jobs were created in July. Forecasters were disappointed in June's growth, as fewer jobs were added than initially expected. Analysts aren't sure what to make of this, as the market continues to be unsteady.
Refinancing stampede encapsulates national dilemma
The US debt ceiling crisis has been averted, so for some this may mean a return to business as usual. The frustration and ambivalence of many economists and those in the financial and banking sector will most likely continue as the economy is still underwater. Despite borrowers changing their ways from spenders to savers, key economic indicators, like unemployment and the historically low prime rate, suggest we are in for a slow rise out of the deep end.
What few in New York or Washington are keen to discuss is the murky, shadow economy that amounts to trillions of dollars in toxic assets. Refinancing may help banks post record profits in the short term, but financial instruments of this kind are no replacement for growth in the private sector outside of banks and lending institutions. Until this part of the private sector recovers making the country profitable and solvent, it safe to assume borrowers and lenders will be forced to tread water intermittently in the coming months.
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