Mortgage Applications Down - The RE Market is in Deflation Mode

Just reported: decline in Mortgage Applications. On first glance one would think, how can that be? At least ReFis should be solid, the 30 yr rates are back under 5%.

But a closer look makes it clear:

1: ReFi is only possible when the mortgage is not updside down and the value is actually above what is owned. Since the markets have declined so drastically there are very few owners who still have sufficient equity in their homes to not only refinance but also carry the cost of it and end up with a better rate. Additionally the appraisal process and the outcomes are highly unpredictable. A client of mine who bought last year with cash and applied for a Home Equity Loan is in his 8th (!!) month with this application and on his 2nd appraisal with the second appraiser as the first coming from a completely different area with little to no knowledge about our local markets. They are solid people with good credit. That the bank did not ask them to list their clothing as collateral was all. Unless one really needs and wants to, it is by now a process market by staggering indignities and ridiculous requests. All in the name if CYA....

2: Buyers do not really believe that there is a silver lining and prices will go up. The perception and expectation is that there is further eroding. So one stays at the side lines and watches the prices come down. Unless one really needs a home because of a move and there are no rentals available they do not feel the pressure.

3:Unless mortgage rates hit 7+ % it is still incredibly affordable to take out a mortgage. Nobody feels that pinch (yet)

4: Unemployment is still very high and only gets lower at a less than snails pace. Companies still lay off. If one is not 100% sure the job is still there in a year, taking on a mortgage is simply out of the question. People have learned a thing or two about risks...

5: Even if we see the ARMs, 100% financing and all the good stuff creeping out of their shallow graves again, people are not readily accepting those anymore (see No 4...)

So it is clear that this is a systemic problem and would these phenomena appear economy wide we would have the perfect Deflation, a downward, self feeding spiral.