Fed Unintended Consequence #267435: Homeowners Front-Running QE By Not Refinancing

For the fifth week in a row, MBA mortgage applications fell - dragged lower by a notably consistent drop in the refinance index - which dropped 3% this week alone and represents almost 80% of the total number of loans. Surely if rates are rising - as they have in general in the last few weeks - we would expect the 'rational homeowner of olde' to rush to his friendly local mortgage broker and refinance immediately for fear of missing the turn and the 'opportunity of a lifetime' to lock-in low rates.

Unfortunately, just as retail equity investors appear to the be the smartest players in the room as they sell into strength, so the homeowner has now become conditioned by the Fed's central-planning and repression to expect rates to remain low - and QE3 to be implemented later in the year - and therefore will wait for the 'expected' lower rates rather than accept a periodically rising rate. Yet another unintended consequence that hints at the fact that should we see 'real' recovery (we know, but go with the thought experiment) then higher rates will act as a drag on a burgeoning mini-stimulus from refinancing and normalize us back to lower growth.