This page has been archived and commenting is disabled.
Glimmers of Housing Hope In Mortgage Applications Data
Courtesy of Lee Adler of the Wall Street Examiner
Purchase mortgage applications rose 6.4% last week according to the Mortgage Bankers Association and major media outlets. As always, the media report only the seasonally adjusted data fed to them by the MBAA. Rarely should a week to week change have any seasonal effects, although last week would be an exception because the week before included Columbus day, when only a few hardcore addicts would be out taking apps. So the suppliers of the data make up a number to account for that, and off they go. By the same token, the not seasonally manipulated week to week figure is probably of equally little use.
Week to week changes are rarely meaningful to begin with. We're always more interested in the trend, and whether that trend is showing signs of change. For that purpose, the year to year change is far more important. Bloomberg provides a chart of that data, not seasonally massaged, going back 5 years, which includes the beginning of the housing meltdown. The year to year change in the latest reporting week (October 21) was a decline of 2.6%. That's not good, considering that the market was already at rock bottom levels. But the picture of the last 5 years tells a different, and somewhat more hopeful story. The rate of decline has slowed to a crawl. The market is no longer collapsing.
Additional considerations are the fact that real estate brokers continue to report that large percentages of contracts are falling through. In the latest NAR report for September brokers reported a fallout rate of 18% versus 9% in September 2010. Combined with the current mortgage applications data, that suggests an overall decline in effective purchase demand of 12%. OK, so that really is terrible. But it is at least a hopeful sign that buyers are willing, if not not able, sometimes through no fault of their own. Some of this is due to credit rating (effective demand), and some is due to low appraisals, which is an external constraint on demand.
The willingness to buy is a first step, but prices must stabilize so that appraisers can stop applying downward adjustments that result in a value opinion below the contract price. Appraisers also have a problem with listing comparables in some markets, when REOs are listed at prices less than the contract price between buyer and seller. A house cannot be worth more than a house down the street listed for a lower price, regardless of who owns the listing, man or beastly bank.
In that respect, distressed supply constrains effective demand. This problem is concentrated in the hardest hit, post bubble areas like Florida, California, Nevada, and Arizona, where lender REOs are listed in the MLS listings in large numbers. It is less of a problem in most other areas of the country, and we are seeing prices stabilizing in many metro areas. Less distressed markets can recover sooner than distressed markets even though distressed markets have had much larger price declines and are cheap relative to median market household income in many cases.
The other consideration is the level of cash purchases. These will put a floor on the market where they constitute a significant percentage of sales because appraisals are not necessary. Where there's no appraisal contingency in the contract, a real, effective meeting of the minds has been established. Brokers reported cash sales were 30% of the market in September, little changed from 29% last September. As a result, price declines, while continuing in many areas, have leveled off over the past year.
The slowing of the rate of decline in mortgage purchase applications is a hopeful sign, but the market cannot stabilize until purchase applications increase and the rate of denials stops increasing.
As lenders hold more shadow inventory off the market, it becomes less of a supply threat over time, because the physical, and in many cases locational, deterioration of those properties renders them noncompetitive with non distressed inventory. An appraiser would not need to consider a listing that has been stripped of all its copper wiring, or where needed repairs are so great that the typical buyer would not consider the property competitive. In many cases the obsolescence becomes so great that these properties, and indeed whole communities, may become unmarketable altogether. It's inventory that ceases to be inventory for all practical purposes, but I know of no one who has attempted to deduct those numbers from shadow inventory. For this reason the shadow inventory threat is grossly overrated in most areas that still retain long term viability.
Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, and get regular updates on the US housing market in the Wall Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE’s Professional Edition risk free for 30 days!»
- ilene's blog
- 4345 reads
- Printer-friendly version
- Send to friend
- advertisements -
The mortgage brokers getting a 30% approval pull through don't know what they are doing. It is very easy for you to complete your loan application on a lenders website or over the phone with an LO. They will run your application through FNMA's automated underwriting engine. If they get an Approve Eligible Finding, they then pull comps on the property. If the value looks like it will be supported, they email you a list of what is needed per the findings, you get it to them and close your loan in 2-3 weeks. This is not rocket science people. If your credit score is 640+, there is a good chance you will get an approval. There is a lot of business being done now. Only those with 0 equity, debt to income ratios out in left field or pretty shitty credit will not get a loan. If your not getting a loan, there is a good chance it is because of one of those reasons.
As far as values are concerned, ya they will continue to slide.
C'mon, just because there's a plateau doesn't mean a gigantic cliff doesn't lie ahead. And if deals are falling through with no new buyers to replace them, you can bet closed deals will be down even further in Q1.
Without job growth--- no way
There is no job growth
When market forces kick in (or kick the Fed out) interest rates will rise to their normel level...house prices will correct further downward.,,,that's what Shiller said.
talk to young americans.
they get better quality housing at their parents home than anythign they can afford.
No job, student debt, no family....why would they buy a boomer's old pad for twice the market?
Housing is dead for at least 10 years.
Two mistakes in this analysis. First is focus on "applications." And how many of these applications will actually close? That's all that matters, the flow of dollars from lender->borrower->seller. "It's all about bucks, kid. The rest is conversation." - Gekko
Second, interest rates. My position is you'd have to be a blithering idiot to buy real estate with rates at historical lows. What happens when rates move to 5%, 7%, 8%? The only part that can move in the house funding equation will drop like a stone: the price of the house. Good real estate investors know you want to be buying when rates are high, because you can either refinance at a lower rate, or sell to another sucker when rates are lower and your future buyer can borrow more at lower rates.
There is an inverse relationship between value and interest rates. They are trying to stop deflationary pressures by keeping interest rates well below where they should be. Any glimmer is the dying flames of hope. We need a deflationary cleansing. They keep trying to stop a natural process. Its only going to make the actual event more violent than it needs to be. Expect a volcano. Pompay anyone?
Sorry to see this article on ZeroHedge. It clearly qualifies as disinformation.
the prices here in florida are going up. and i see less and less inventory for sale. But i don't believe we are at the bottom. People are maxing out there credit cards, not paying for there mortgages. I enjoy my low rent and even do i can afford to buy a house, I still think they are way over priced. People who are buying now, are house junkies that think they will be rich in 5 years. I rather hold gold and silver then a house that swallows money like there is no tomorrow.
We are gonna have a supernova of hope once Ben cranks that printing press so much even the dead mortgages get inflated higher.
glimmer of hope
the glimmer you see is large round holes in head .
some one with a small flash light is probing for something that resembles a loose screw .
Double jeopardy may be off limits, but that doesn't stop people from volunteering for a "New Deal".
http://georgesblogforum.wordpress.com/2011/10/26/wage-slave-2012-update-10262011/
So let me get this straight:
1) Home prices have been falling for over 5 years.
2) Interest rates are at historical lows.
3) Effective purchase mortgage demand is down 12% Y-O-Y.
Sorry Lee, but if you're seeing "Glimmers" in this scenario, you're having a bad LSD trip.
If buyers aren't coming forward in an environment of ZIRP and low home prices, it proves this market is nowhere near a bottom...
No jobs, no buyers. Cash flow 101.
+same job less income, more expenses. Health care has been going up 15% every year.
I got a "Cash for Keys" offer in the mail and I'm not even behind on my mortgage! I called Bank of Crapmerica and they told me that, "Yeah, I see you are current on your mortgage, but since you received an offer, I suppose the offer is good!"
I explained to that CSR person that the bank's offer of $3,265.00 to move me out was not sufficient to offset my $225,000 in equity. I then asked if it could be applied to my credit card balance. She said that she would check and call me back. true story
Tidefighter,
Your experience sounds eerily familiar. In June of 2010, I contacted the same bank to explore the possibility of a loan modification. I was not seeking a principal reduction, only checking into an interest rate reduction. I was current at the time and in fact, had never been late on a payment. Within a week, the bank had sent someone by to do a BPO (Broker Price Opinion). My property was strangely and erroneously reported as vacant. Before I knew it, my carrier had dropped my homeowner's policy and my property was in foreclosure. Because of the pending foreclosure, I could not find a carrier to write a homeowners policy (previous carrier refused). I have since come to realize this done to charge usurious lender placed insurance.
All of the big three credit bureaus - Equifax, Experian and TransUnion have developed programs to predict strategic defaults. I am very confident that the call I place in regards to a loan mod - when I was current - set the ball rolling on my foreclosure.
I would be very, very careful in dealing with BofA. There is a reason why you received a "Cash for Keys" offer when your loan is current and not in foreclosure. And it is not good.
That is a frightening story.
According to my mortgage broker buddies; less than 30% of apps get approved; primarily due to appraisals; secondarily due to income verification. You don't even get to fill out an app unless you have a 700 FICO; there might even be five of those people within a 20 mile radius.
Filter the spin folks; it's getting deep
How about the trend of application cancellations? Were I a buyer -- that is, if I had a case of sudden temporary insanity-- I know I'd get cold feet.
still plenty of people with 620 FICOs going 3.5% down or even 0% down (via USDA Rural Housing guaranteed loans)
Folks have been trying to call a bottom on this market for a while, now. I'm not convinced that the bottom is in, especially with a renewed/worsening economic slump. I look at this morning's report, and see bad news: sales off 8% yoy, prices down 10% (15% in the last 3 months alone.)
http://pebblewriter.blogspot.com/2011/10/housing-more-of-same.html
Betcha there are a bunch of non retail(Strawman) applications from Investors applications coming in,, just like before the collapse.