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