3 Reasons Why We Shouldn't Freak Out About Plunging Mortgage Applications

Rising mortgage rates have many worried about the toll it could take on the housing recovery. The 30-year mortgage rate saw a dramatic run up this summer to a two-year high of 4.58%, but clambered down to 4.32% in the latest survey.

And from the beginning of May to the beginning of September total applications for home purchases and re-financings plummeted by 59.25% to October 2008 levels, writes Brian Jones at Societe Generale.

But, he thinks all the concern about the "rate induced swoon in mortgage applications is overblown," for three key reasons.

1. Almost 95% of the slump in volumes of applications to purchase homes and to refinance prior loans has been driven by the latter. "Preventing consumers from altering the terms of their current home loans will undoubtedly constrain personal finances and spending, but should have little if any impact on dwelling- purchase decisions."
2. The MBA survey does not include loan applications delivered through wholesale broker or correspondent channels.
3. A large portion of home purchases are all cash and don't involve a mortgage.

Here's a chart that show's that mortgage purchase applications do not track mortgage rates that closely: