The bond market rally that began in early May and surged again last week has been lifting the prospects of mortgage banks, but actual improvement in business has been slow to develop.
Interest on home mortgages tend to mirror the yield of the benchmark 30- year Treasury bond, which dropped to 6.72% last Thursday, the lowest since February 1994.
The average interest rate on 30-year, fixed-rate mortgages declined 4 basis points last week to 8.04%, the lowest since the end of March 1994, according to HSH Associates, a publisher of mortgage information in Butler, N.J.
David Berson, chief economist at Fannie Mae, said he thinks the current interest rate environment for 30-year, fixed-rate loans will cause a "refinance ripple rather than a refi wave."
"I think we are pretty close to the bottom," Mr. Berson said, referring to current interest rates, which he believes are not low enough to pique interest in refinancings to the extent seen in 1993. That year, rates dropped as low as 7%, causing the last refinance boom. He said he does not expect rates to drop that low anytime this year.
Lenders are not as optimistic about a pickup in business as would be expected with interest rates down and staying low.
One lender expressed concern about the poor performance of economic indicators, including home sales and employment, dragging down what would otherwise be a pickup in homebuying interest and in refinancings.
"Because of the slowing economy, even with lower interest rates, we are not seeing the huge surges in volume as one would suspect," said Robert E. Roth, president of Marine Midland Mortgage Corp., Buffalo.
As the long bond's yield drops, he said, mortgage interest rates are not following the yield of Treasuries as closely as one might expect. So the impact on refinancings of adjustable mortgages to fixed-rate loans is not what one would have predicted.
"We're not seeing a (refinancing) boomlet by any stretch of the imagination," Mr. Roth said. He is not alone in this perception.
Joe Petrotta, vice president at Continental Inc., Seattle, said that, with declining rates, there had been some interest in purchase loans and refinancings - but not much.
"Of course that is spurring interest, and interest becomes applications," Mr. Petrotta said of Continental's 30-year rates falling into the high 7's.
"We're even seeing refinances," he said, with the last word spoken in a whisper. "I didn't think there was anyone else who hasn't refinanced."
Mr. Petrotta said he has seen such slow activity he is hoping rates will stay low to spur more interest than he has seen lately.
"I'm hoping it is going to turn around because it's just depressing," he said. "If we start seeing rates in the 7's for a period of time, it should really pick up."