The Housing Unrecovery: Mortgage Application Drought Continues

Tyler Durden's picture

The unaffordability-train rolls on in the US housing market. While it may destroy the housing-recovery-will-save-us meme (even as homebuilder stocks are the worst performing since the FOMC and many are sliding to 52-week lows), the facts are that a rising mortgage rate (now over 4.50% for the first time in 2 years) does reduce dramatically what the average household can afford to pay (given that people - unlike banks and governments - have limited incomes and balance sheets). Mortgage applications fell for the 8th week of the last 9 at the fastest year-over-year pace in 3 years and slumped to 2 year lows. This bodes extremely ill for home sales and the 'recovery' upon which it has already become dependent (as we noted here).

Worst Year-over-year change in 3 years...


which tends to front-run the shift in home sales... (inverted mortgage rates relative to a lagged home sales index).


and as a reminder... this DOES impact affordability - no matter how much your friendly local realtor or mortgage broker tries to explain still-generational-low mortgage rates - it's simply all about the marginal move...


Get back to work Mr. Bernanke...


Charts: Bloomberg

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andrewp111's picture

OK. Markets fluctuate, and no trend can be followed into infinity.

Badabing's picture

Goldman Sachs cant lend us money because it is buying all the uranium in the world.

Its only a matter of time until a bank becomes a nuclear power!

boogerbently's picture

So, if we want to start selling houses again.........

LawsofPhysics's picture

No worries, banks and bankers will simply start buying/selling amongst themselves and their political puppets...

Now where have we seen this before...

Cognitive Dissonance's picture

It seems even mortgage applicants have been trained to BTFD (in interest rates).

<Get to work Bernanke. Time to warm up the chopper.>

asteroids's picture

The Charisatan has made the banks whole. They now own Mcmansions. But, the average person can no longer afford to buy. Somethings gotta give. Either housing falls, or people get real jobs and huge pay raises. Since the FED has no interest in jobs, you gotta think that housing is going to stay flat or go down for a very very long time.

Seer's picture

Good little Americans will be incited to "Buy American," to buy those McMansions no matter!  If you don't then you're a terrorist (and TPTB will then move you into the BIGger House).

ArkansasAngie's picture

How about Benny stop working.  How about he declare a work stoppage.  No bailing out of banks.  No manipulating the markets.  No buying of bonds.  No giving of money to Europe.  No secret deals with prosecutors/regulayors.  etc. etc. etc.

Seer's picture

Ever hear of the phrase "greasing palms?"  If they stop then the Game stops.  All nearly everyone knows is The Game.  W/o the "grease," which we know cannot continue forever, it all seizes up.

Nothing but the truth.'s picture

  And with the help of all the fudged numbers coming out of the government, the phantom economy and state sponsored ponzi scheme will simply roll along

Mercury's picture

...and as a reminder... this DOES impact affordability - no matter how much your friendly local realtor or mortgage broker tries to explain still-generational-low mortgage rates - it's simply all about the marginal move...


Until prices adjust.

This is the kind of protracted BS you get when markets (for loans or houses) are never allowed to properly clear.

disabledvet's picture

i like this comment. one of my favorite lines from the movie stripes is when the park their jolopy in the no parking zone and the guy exclaims "you can't park that here!" they respond "we're not parking that car. we're abandoning it!"

Mercury's picture

Recently on the high end (where mortgage rates have also been artificially low) loans are much more regularly approved for these (well-healed) borrowers...after the now requisite amount of compliance theatre.  As a result there are currently bidding wars left and right for RE in premium, local markets.

So, as has been the theme since at least 2008, the poor and the rich are getting the most for the least while the middle class gets squeezed the hardest.

tip e. canoe's picture

check out the price history of those "high-end" homes that are selling (outside of the "trendy neighborhoods").

in most cases, you'll see a significant (and i mean, SIGNIFICANT) decrease from the original "offer price".

Mercury's picture

Try buying a condo in Boston or New York.

JPM Hater001's picture

You have to view those systemically. Demand is a factor in all markets. These just happen to be locked in by water with more trying to get in than out.

Of course that's only till we just convert it into a prison. Then the bankers don't have to relocate.

Anyone seen Pliskin? Where is that bastard?

Slim's picture

Great comment. 

What mainstream people seem to be missing is that taking interest rates from 6% to 3% (using rough numbers) doesn't make a person who could buy a $300,000 house into a person who can buy a $500,000 house.  It puts the $300,000 house at a $500,000 price point thanks to foolish people exceeding tightly controlled inventory.  You saddle a $100K famlily with a $500K principal balance and regardless of monthly payment, it's very painful if anything goes wrong.  The meteoric rise in housing prices courtesy of cheap credit has vastly outpaced gains in income which is why buyers don't have 20% down anymore. 

All speculation and wreckless leverage.  At some point a lesson is learned here and I very badly don't want to be collateral damage for these fools.

tip e. canoe's picture

great comment as well, stickiness works both ways.  

once the glue comes off. watch out below.

Seer's picture

"Until prices adjust.Until prices adjust."

Can't help but think about all the ARMs: it's like juggling with running chainsaws.  As "fun" as things are in the US, just watch how it goes up in smoke in Canada (ARMs are almost a requirement up there; Australia is another place I watch, and there too things are likely to really send up the smoke*)

* I was poking around looking for info on Australia's housing bubble and I ended up sidetracking upon this article/paper which I thought others here might like to hold on for a reference (I'll hold it to beat anyone over the head with it should they proclaim: "no one could have seen it coming"):

Munich Personal RePEc Archive No One Saw This Coming": Understanding Financial Crisis Through Accounting Models

I am Jobe's picture

ah the dream the hope and the memories. Fuck sheeples wake up. Long way to the bottom.

Seer's picture

I left the "memories" before they turned to nightmares... and now am on new "memories," which I find will be much harder to ratchet down from (at some point, without a shovel, it's kind of hard to get any lower... unless, that is, someone else is using a shovel to set you 6' down).

Dingleberry's picture

FHA implemented rules for lifetime PMI this summer. I wonder if that is affecting the market. Seems like it should with so many buying already stretched to their limit.

Rainman's picture

Goobermint will not let subprime lending die. Making home loans to the low income 580 FICO crowd is still madness.

AynRandFan's picture

Very illuminating article.

Seer's picture

The "goobermint" is just doing what the masters tell them to do- not enough volume in the "wealthy class" so they have to stir up "dirt"...

It's The System.  To borrow from Jethrow Tull's Locomotive Breath:

"Old Charlie stole the handle and
The train won't stop going"

If we pay attention we'll see that there never was a "handle."  ANY growth within a finite environment WILL eventually end.  The promotion of growth is either a short-term -screw a few- bubble or a long-term -screw a LOT (cataclysmic)- bubble, no matter how short or long, a bubble IS a Ponzi in action and it will ALWAYS terminate.  It's more a mechanism/system (predicated on growth) than a "who" ("goobermint" or "TPTB," though the influence as pertains to duration and scope is highly affected by these "who").

SheepDog-One's picture

Just because you build it doesn't mean they'll come.

hairball48's picture

And who is surprised by all this?

Seer's picture

Well, according to the status quo that would be "EVERYONE!"

Esso's picture

Unrecovery? Unpossible!

disabledvet's picture

it's the Cliff's of Insanity!

ArkansasAngie's picture

How come Unelect isn't a word?

NoDebt's picture

Getting clubbed over the head like a baby harp seal.

Just put Mom's old house on the market before the 4th of July holiday.  My timing is no better than Stolper, apparently.


SheepDog-One's picture

No problem though....hey as long as they can drag hockey-helmeted equities higher that's all that really matters.

digitlman's picture

But....but...there has NEVER BEEN a better time to buy!





brady's picture

I've randomly gone through open houses even though we aren't in the market. It's kind of interesting. Anyway, for the last five years typically the first thing out of the realtor's mouth (following a canned greeting) is "there's never been a better time to buy!"

At least I have a solid list going of realtors we won't use.

22winmag's picture

Solution... live under a bridge and take out a student loan, so you can get a better job, so you can make more money, so you can buy a bigger house.

CheapBastard's picture

The housing market is stalling in my son's area where he is considering buying when prices correct (revert) to the mean. Higher rates and slower economy mainly. Realtors there crack me up. They keep saying, "Better buy now, this house won't last " and yet when you look at Zillow, Trulia, any of them dozens of houses have been on the market for 90 days or longer.


It's sad for people (families) who are hard working and saving and encounter such BS spin 24/7. They must do their own research to compare and also rea dblogs like ZH and Dr Housing Bubble to get the truth.

CrashisOptimistic's picture

Good info.

Of course, if the hedge funds buying 1000s of foreclosures are the source of buying, for cash, the mortgage apps aren't too important.

Though when they find that their rental spreadsheet isn't providing any decent returns and try to dump what they bought, which may be now, then the absence of mortgage apps could be a killer.

MachoMan's picture

Not really, the unwind is fraught with the same problems as the run-up.  As idiots kept buying hand over fist during the run-up, they were setting their own comps and ended up just bidding up themselves.  The reverse will be true on the way down.  I think they're stuck holding a material number of the properties.

The question is whether that is really all that bad...  well, the only way it would be bad is if there is some opportunity cost...  and, as shitty as virtually all other investment options out there presently, I'm not sure "less than expected" returns are particularly troublesome.  There is still money to be made renting, especially for cash purchasers (and at large discounts at that).  While they're scared shitless at the idea of having to manage real property, I think the market will likely form around them in that they'll be able to find middle men to handle all the work for them (e.g. management companies that specialize in handling large books).  While this obviously effects the bottom line (the middle men want their due), it doesn't take it all away.

Now...  on the other hand if you could be so lucky as to never have a day of trading losses each and every quarter, ad infinitum/nauseum, then you might find these returns a bit sobering.

RockyRacoon's picture

Fortunes to be made in the rental business!  Sure.  Having been (formerly) in the property management business for 20 years, I can tell ya that the purchase price is only the first of their problems.  I managed for some docs and lawyers in the 1980s who got all hyped by the "no money down" property bug.  It was painful for them to find out that they were paying a down payment, just on the installment plan with the negative monthly cash flow.  One vacant month and that "down payment" went up drastically.  They'd run the property in the ground by leasing to anything that breathed, then come to me to "fix" their problem -- hiring a black-hat if you will.  Once you engage a property manager you get two things right off the bat: 1. More negative cash flow, and 2. Someone who will never manage it like it was their own.  Myself included, up to a point. 

I have stories that would make your skin crawl.  We managed a few Section 8 complexes and that was a real eye-opener.  After reaching just over 2,000 units I called it quits.  If you add 150 to 200 units to your business you'll need another office or on-site person, and there goes a large part of the management fees in overhead.  ...and another link in the chain of responsibility is added to the mix.  A conscientious manager will get burned out sooner or later.   It's a 24/7 job if done right.  Any property manager who wears a suit/tie every day is not the guy you want unless it's purely upper level office space.  For residential property, daily wear is jeans and dirty sneakers.

Oh, and maintenance/repairs.  That's another book.

Stoploss's picture

Make sure he waits. These "owners" are foreign all cash buyers, primarily Canadian and Chinese.

Guess what they're sitting on now?

House prices are over valued by 50% right this very second.

Raise cash an wait for the smell of shit in the air, then move in with the cash since they will be taking any offer to get out of the tax burden.

DeadFred's picture

Even my massively overheated local market is cooling. Two of the houses that sold last month went for less than the asking price. Unheard of!

Seer's picture

Back when the "B" word was first starting to crack the MSM surface I'd had a friend(?) who was in the mortgage business sending me his business pitches (got on his mailing list).  I replied to one of these e-mails that I "knew better."  The response that I got back was nearly unimaginable- he threw everything at me, accusing me of being the most arrogant human on the planet.  Sometimes I spend mental energy on visions of wiping his face with all of this, but he's not worth any more energy than that (neither is anyone else [I have a family member along these lines and I don't much talk to him anymore]).

All people really need to know is: Food, Shelter and Water; and, the concept of being able to assess and live within one's means (not what Wall Street and Madison Ave tell you what your means are [which are over-inflated in order for them to suck off of that inflated valuation]).

q99x2's picture

Everyone pays cash these days. Loans are so last century.

orangegeek's picture

Philly Housing Index Weekly is nothing but down.


Housing prices should continue to decline - no buyers at current price levels.

Osmium's picture

There is a simple explanation for the decline in mortgage applications.  The consumer is sitting on a mountain of cash.  They no longer need a loan to buy a house as most of them will be cash transactions.

CrashisOptimistic's picture

They saved up all that cash from the proceeds of their part time jobs.

Seer's picture

And those part-time jobs disappear because everyone is saving rather than spending on the goods/services that those part-time jobs deliver!  Rock and hard spot... soft landing my ass...

SheepDog-One's picture

You mean the avg 'consumer' out there with a part time job at best has a safe in the basement with around $150,000 cash in it?


Osmium's picture

I kinda thought using mountain and cash in the same sentence would give it away, but I guess not.  So here it is.