Mortgage Applications For Purchase Remain Flat Even As Home Sales Climb

According to recently released data by the Mortgage Bankers Association, total mortgage applications fell by 4.8% in the week ending on October 26, 2012. This is the fourth consecutive week that the index has fallen. The most recent decline in total mortgage applications reflects a decrease in applications for refinancing. The 6.0% decline in the index of refinancing applications was only partly offset by the 0.5 percent increase in the mortgage applications for purchase index. Mortgage applications for refinancing represent 80.0% of all mortgage applications. Meanwhile, the Federal Home Loan Mortgage Corporation, Freddie Mac, reported that the 30-year fixed rate mortgage fell by 2 basis points to settle at 3.39% in the week ending on November 1, 2012.

The broader decline in the 30-year fixed mortgage rate that began in February 2011 has had a noticeable impact on demand for refinancing, but mortgage applications for purchase have remained unresponsive. Since February 2011 the 30-year fixed mortgage rate has fallen by 164 basis points from 5.05 percent while mortgage applications for refinancing have more than doubled, growing by 114%. In contrast, the mortgage applications for purchase index has remained essentially flat. After peaking in 2006, mortgage applications for purchase fell dramatically and is now below the level seen in the previous decade. Since February 2011, the mortgage applications for purchase index has declined by 0.4%.

The trend in the mortgage applications for purchase index is often interpreted as a leading indicator of home sales.  Although mortgage applications for purchase have remained relatively unchanged since February 2011, single-family home sales have trended higher. Over this same period, combined sales of new and existing single-family homes have grown by 15.4%. Sales of new single-family homes have risen by 42.5% and single-family existing home sales have increased by 13.5%. Growth in sales of single-family residential homes may reflect the growing role played by all-cash sales. In its latest release, the National Association of Realtors (NAR) revealed that all-cash sales of existing homes rose by 1.0 percentage point to 28% between August 2012 and September 2012 and is nearly double the rate of four years ago. Growth in all-cash sales helps to explain the observed divergence between single-family home sales and the mortgage applications for purchase index.

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8 replies

  1. The mortgage application data may also be a reflection of the great number of distressed sales to investors who often use proceeds from the refinancing of other properties, lines of credit and other, non-mortgage, financing. Also, home sales are recorded after the sale has closed while mortgage application typically takes place months before the sale is closed and recorded.

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