Not out of the woods yet
The U.S. Mortgage Bankers Association reported this morning that it’s weekly look at mortgage applications for new and existing homes, or it Purchase Index, increased by 6.3% from one week earlier on a seasonally adjusted basis.
“Purchase applications increased last week, reaching the highest level since the end of May. However, purchase activity remains well below levels seen prior to the expiration of the homebuyer tax credit, and is almost 40 percent below the level recorded one year ago,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.
In the wake of the expiration of the home buyers tax credit, mortgage applications quickly plunged to levels not seen since 1997, doing an excellent job of foreshadowing the collapse in housing sales this summer (see Purchase Index points to near-term housing weakness).
The most likely reason: rational buyers moved up purchase decisions to capture the extra cash the U.S. Treasury was providing.
However, several factors, including waning consumer confidence, tight lending standards, high unemployment and foreclosures, and concerns that housing prices could still decline are also keeping potential buyers on the sidelines.
Mortgage rates are at historic lows and affordability is high, according to surveys, lending modest support to the market. But stiff headwinds are preventing a solid foundation from being formed under the market.
Until housing begins to recover, it seems unlikely that a robust economic recovery will develop.
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