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

Biltmore...conventional sale and some opinion and prediction for what's coming up!

A Biltmore model on Houlton Circle was sold on 11/30 at a price of $315,000. This was a conventional sale (not a short sale or foreclosure). The home was on the market 62 days at an asking price of $325,000.

The sellers were the original owners who purchased the home in November of 2000 for $222,700.

This sale is a very good example of what I have been saying recently regarding homes that are NOT distress sales: These homes are selling quickly and for prices above what a comparable short sale will bring. Buyers are fed up with the inefficiency and incompetence displayed by the lenders in negotiating short sales and will pay a premium to avoid dealing with that situation.

Couple the above with the expanded and extended tax credit and the next 6 months will be a good time for sellers to market property that is not a short sale.

After the expiration of the tax credit (which I don't believe will be extended again) and the scaling back of the open market purchase of mortgage backed securities, (which will most likely cause mortgage interest rates to rise), I think the market goes into another decline as a result of the removal of those artificial supports.

Here is a little snippet of an article I was just reading regarding MBS: The Federal Reserve is pumping $1.25 trillion into mortgage-backed securities to try to bring down mortgage rates, but that money is set to run out next spring. The goal of the program is to make home buying more affordable and prop up the housing market.


The window of opportunity is open now...