by John Rubino, Dollar Collapse:

Back in the 1990s we did our first cash-out refi. And it was amazing. The bank lowered our monthly mortgage payment AND wrote us a check for $16,000. I told that story to everyone I met for months afterward, and they were, without exception, astounded.

That, in a nutshell, is the refi paradise in which homeowners have been living ever since. By continuously lowering interest rates, the Fed has in effect been cutting our taxes, enabling us to buy furniture, cars, vacations, you name it. Easy money, funneled through the housing ATM, was an amazingly efficient stimulus program.

But now it’s over:

U.S. home refinancing falls to lowest since 2000: MBA
(Reuters) – U.S. applications on mortgages to refinance an existing home fell to their lowest level in 17-1/2 years as some 30-year borrowing costs climbed to their highest levels in over seven years, the Mortgage Bankers Association said Wednesday.

Higher mortgage rates have pinched requests for mortgages to buy a home, although strong housing demand and tight supply have offset the rise in borrowing costs.

The Washington-based group for the U.S. mortgage industry seasonally adjusted measure on refinancing applications declined 3.7 percent to 1,018.1 in the week ended May 18, the lowest reading since December 2000.

The share of refinancing among weekly mortgage applications dipped to 35.7 percent from 35.9 percent the week before.

Refinancing “might not come back for years,” said Jonathan Corr, president and chief executive at Ellie Mae.

Interest rates on 30-year fixed-rate “conforming” home loans, whose balances are $453,100 or less, rose to 4.86 percent, the highest since April 2011. They averaged 4.77 percent the prior week, MBA said.

Fifteen-year mortgage rates averaged 4.31 percent last week, the highest level since February 2011.

Average interest rate on five-year adjustable-rate loans rose to 4.12 percent, the highest since the MBA began tracking it since 1990.

If being able to refinance your mortgage every few years is like getting a tax cut, no longer being able to refinance – while your property taxes and maintenance expenses are rising – is the opposite. Suddenly, owning a house is an expensive proposition rather than a source of free cash. The result won’t be pretty.

The following chart tracks the ratio of cash-out refis to total refis. When the former becomes the majority, that’s a sign that home prices are very high, giving some homeowners lots of equity to suck out while rising interest rates prevent those who lack equity from refinancing. So the total number of refis goes down while the percentage of refis that extract cash rises. Put another way, it’s a sign that the housing cycle is peaking.

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