The Mortgage Brokers Association (MBA) Report that tracks mortgage loan application has been reporting declining numbers in mortgage application from mid July throughout the month of August. This has been despite the fact that mortgage rates have been at an all time low and reports in recent months have been optimistic that the housing market could be on its way up. The Wall Street Journal reported that “Purchase applications declined 5.3% in August, evidence that mortgage dependent buyers are barely contributing to the recovery in the housing market.”
In other related news, Redfin, the technology-powered real estate broker, in the past week reported its Real-Time Demand Pulse, a report that analyzes offers and tour data on thousands of customers touring homes and signing offers in eighteen markets across the United States.
The report showed that customers signing offers fell just 4% in August, an improvement of nearly 10 percentage points compared to the same period a year ago, while customers requesting home tours were down 6% which remained unchanged from last year. According to the latest press release by the company, “home offers and tours are early indicators of home sales; the housing market recovery is likely to continue into the fall”. The CEO was also quoted as saying, that, “The market isn't booming, but it's building steadily in ways that have surprised many economists. In the past few weeks, we got the first signal that the winter will be relatively strong, which in turn bodes very well for 2013."
While any news of an improving housing market is good news, the importance of new home loans cannot be understated, as these have a trickle-effect on the economy as a whole. Generally, real estate and real estate activities account for 24% of the U.S Gross Domestic Product (GDP), per Rebel Cole, DePaul University Professor. When a person buys a house, they not only need to hire several professionals to assist in the transaction, but they also hire contractors and tradesmen for improvement they want done on the house. They then choose to buy items for the new home, therefore providing money and work for the broader economy. This means that the lack of home purchases translates to higher unemployment which leads to the contraction of the economy, and on goes the cycle.
Despite the slight improvement in home buyers showing interest in touring homes compared to a year ago, purchase mortgage applications have been slow in catching up. This may be due to the stringent qualifications set forth by banks for loan qualifications, coupled with the fact that due to the current economic environment many buyers have lower incomes and less than stellar credit score ratings. Possibly, this may be due to the sheer number of scared people who have seen their friends, family, and peers lose significant quantities of hard earned cash due to the devaluation of their homes. It is possible that many of the potential buyers touring homes and making offers, are eliminated from the loan application process long before ever formally applying for a loan as they do not meet the qualifications.
As we continue to cautiously wait and see if the recent housing recovery holds, it will be interesting to see if improvements in new loan applications reported in the first week of September continue in the weeks and months to come.
Michael Hobbs, SRA, LEED GA, PahRoo Appraisal & Consultancy
Twitter @Pahroo
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