Mortgage applications at a 13 year low...so why is that important?

The Mortgage Bankers Association reported that demand for loans to purchase U.S. homes sunk to a 13-year low last week, and refinancing demand also slid despite near record-low mortgage rates. Requests for loans to buy homes dropped 3.1 percent in the week ended July 9, after adjusting for the Independence Day holiday, to the lowest level since December 1996, the Mortgage Bankers Assn. said....Rock-bottom borrowing costs are helping borrowers with pristine credit to buy and those who still have equity in their homes to refinance.

Take a look at this statistic and chart below: The refinance share of mortgage activity remained constant at 78.7 percent of total applications…so, at a 13 year low number, only 21% of the mortgage applications were for new purchases! On an unadjusted basis, the volume of purchase applications is 43% lower than the same week last year!



If even at sub-5% rates buyers are not interested, what’s going to happen to buying interest if (when) rates go up?

• Unemployed people do not buy homes.
• People who have had their hours or salary reduced 20-30% do not buy homes.
• People with a credit score of 599 or less (25% of the population) do not qualify to buy a home.
• People who lost 30% of their home equity can not sell their existing home to buy a new one.

Where I see the most activity (and a lot of multiple offer situations) is in the sub $150k range…where you can buy and have payments less than a comparable rental. Maybe this is what will happen going forward in all price ranges…activity and competition will greatly increase when the home price/mortgage rate equation delivers monthly payments at or close to what it would cost to rent a comparable home. And, it does not, necessarily have to come from lower prices or lower interest rates….if rental rates increase, that will be the ‘flip side’ of the equation. Rising rental rates, in my humble opinion, are quite possible given the scary statistic of sub 599 credit score Americans. Going forward I can see many, many more people throwing in the “credit score towel”…we will have a decade of renters (and this could raise rental rates)…income reduction, job loss, foreclosures, bankruptcy…some times up to ten years to clear/restore your credit without taking affirmative credit restoration steps.

If you’d like to discuss how this all affects your plans to sell or buy, please give me a call on my direct line at 561-602-1258.

Thanks for reading,
Steve Jackson

Animal House, Belushi and Housing?

Seems like John Belushi's classic quote from Animal House: "Over, did you say over, nothing is over until we decide it is!" is the mantra for a few high profile real estate, mortgage and financial industry execs. Below are some excerpts from very recent interviews and reports:

• Stan Humphries, chief economist of Zillow: “Most consumers tend to be overly optimistic about what the future holds,”..."the housing recession is not over, prices are continuing to fall"..."We think the bottom is going to be a long and flat affair"...“Foreclosures are increasing and we will reach a peak in foreclosures later this year. These foreclosure rates won’t recede quickly. They’ll stay high.” ...referencing the recently expired tax credits, he said “We will see payback in July and August,”..."as long as unemployment is extremely high (8 percent to 10 percent, or higher), and large numbers of homeowners (23.3 percent) are underwater (almost 49% of all mortgage holders in Florida), foreclosures will stay high. Also, there are as many as 7 to 8 million housing units in the “shadow inventory,” many of which will turn into foreclosures as well... there are also 5.3 million “sideline sellers” just waiting to jump into the market and list their properties..."If you really want to know when the housing market will return to normal, the real estate experts and economics at my conference are talking about 2013 – or longer".

• This from the 'always optimistic' National Association of Realtors: Twice as many homes were added to the market as were sold in April, according to the National Association of Realtors...the housing inventory is back to where it was in 2009, which is lousy news for home price appreciation.

• Michael Fratantoni, the Mortgage Bankers Association’s vice president of research and economics: "Overall mortgage application volume, which includes loans for purchases and refinancings, dropped by 12.2 percent during the week ending June 4, compared with the previous week...“Purchase applications are now 35 percent below their level of four weeks ago, as homebuyers have not returned to the market following the expiration of the homebuyer tax credit at the end of April".

• James J. Saccacio, CEO of RealtyTrac:  "The numbers in May continued and confirmed the trends we noticed in April: overall foreclosure activity leveling off while lenders work through the backlog of distressed properties that have built up over the past 20 months. Defaults and scheduled auctions combined increased by 28 percent from 2007 to 2008 and another 32 percent from 2008 to 2009 — creating a build-up of delayed bank repossessions. Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed.” This is precisely the event that CNBC's Diana Olick was warning about a month ago. Housing is about to take fresh new turn lower.

• Michael Pento, Chief Economist for Delta Global Advisors: "We need to sell assets, and we need to allow the deleveraging process to consummate. We are going in a wrong direction and that's the double dip recession is virtually assured. 2008 taught us very clearly that decoupling is a dodo bird's philosophy. The US is headed down. You'll see home starts, permits, sales plummet in the next few months, that's going to add more supply to the housing market..."

Sorry for the gloom and doom. But my job here is to educate my readers and present the information that may not be getting to them in the newspapers or on cable. I try to help my clients and readers make the best housing-related decisions based upon ALL of the pertinent data...

As always...thanks for reading.

Steve Jackson