Freddie Mac reported today that the average rate for 30 year fixed rate mortgages fell further this week to stand at 5.78%, down from 6.35%just prior to the Fannie & Freddie nationalisation and the lowest rate since Feb 14. It said this was fuelling a boom in remortgaging, with remortgage applications up 58% from the mid August level.
Remortgaging a 30 year fixed rate mortgage with no early repayment charges to a lower rate is a no brainer and it is the purchase market which needs to improve before US house prices stabilize. Nevertheless this sharply increased remortgage activity is still an encouraging sign as it will improve household budgets and perhaps the lower rates will soon tempt some homeowners to think about actually moving.
UK brokers would be jumping for joy with an increase in remortgage activity on even half this scale in only a month!
On the stock market the Dow Jones index had its biggest gain in 6 years, closing 410 points up on the day, or 3.86%, but 617 points higher than its low point for the day. The performance of the Standard & Poor’s 500 index was even more impressive with a rise of 4.3% after over 13% of its constituent stocks rose by more than 10%, including Wachovia bank up by a massive 59% and after Morgan Stanley reversed all of a 46% fall, demonstrating that even in this market shorting bank stocks is not a one way bet.
This turnaround was on the back of reports of an imminent Government proposal to set up something similar to the Resolution Trust Corp, which was formed in the1980s after the collapse of most of the savings and loans banks and the US’s 3 largest pension funds deciding to stop lending shares to short sellers.
With the panic in the markets this week pushing the US Government into taking drastic action and some burnt bears licking their wounds (they can afford it) maybe, just maybe, today will mark a turning point.