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The RTI guys were right

By Holden Lewis · Bankrate.com
Wednesday, December 15, 2010
Posted: 9 am ET

This won't come as a shock to you, but I was wrong in last week's Rate Trend Index, when I predicted that mortgage rates would fall in the coming week. "When mortgage rates move up or down in big steps, they usually overshoot," I wrote. "That's why I believe this jump in mortgage rates will be followed by a small step back. This analysis lacks sophistication, but I believe it'll prove accurate."

Sophisticated RTI voters predicted otherwise. Eighty percent of the RTI panelists predicted that mortgage rates would continue to rise, and they were right. Bankrate's weekly rate survey will be conducted today, and it looks like the 30-year fixed will exceed 5 percent for the first time since May.

The Mortgage Bankers Association says refinance applications edged down last week, for the fifth week in a row. Refi application volume fell only 0.7 percent. Applications didn't plunge. That implies that there are quite a few people who procrastinated while rates were around 4.5 percent. They applied for refis after rates started rising, while they were still in the money.

During the refi boom of 2003, applications followed this pattern: Rates would fall, and lots of people would apply. Then rates would rise a little, and lots and lots of people would apply. That's human nature: A good deal looks even better when you think it's going away.

The 2003 refi pattern didn't hold this summer and autumn. When rates started going up, refi application volume went down.

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