Mortgage Purchase Applications

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage purchase applications.

  • Mortgage applications for home purchase and refinance fell in the past week.
  • Though the longer trend has shown a solid rise in refinance activity in the past year from very low mortgage rates, the low rates have not resulted in higher mortgage applications for home purchases in any meaningful sense.  However, home sales for both existing and new homes are higher by 10 to 20 percent in most markets.
  • There are several reasons for the divergence between mortgage applications and home sales.  First, all-cash transactions are not picked up in mortgage data.  Second, application is not the same as approval and it is possible that the mortgage approval rates may have risen, though there is no timely data to confirm that hypothesis.  Finally, it looks increasingly like the mortgage survey is not accurately capturing the true conditions, particularly in light of the banking industry consolidation and existing smaller sized banks experiencing relatively higher regulatory burdens.
  • At the moment mortgage application data appears suspect.  Home sales are clearly higher and factors for further sales improvements continue to develop.  The only barrier to higher home sales at the moment is the acute shortage of inventory in some markets.
  • Finally, as the Federal Reserve considers another round of Quantitative Easing, any further declines in interest rates mean banks will allocate more resources to refinances and less on home purchases.  Only after interest rates rise a bit higher, and when refinances slow, will banks shift resources back to help out home buyers.

 

 

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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Comments
  1. “At the moment mortgage application data appears suspect. Home sales are clearly higher and factors for further sales improvements continue to develop. The only barrier to higher home sales at the moment is the acute shortage of inventory in some markets.”

    Purchase applications are down year over year even with Mortgage rates 1% lower.
    If you look at Wells Fargo last numbers I believe 77% of all the mortgage business are refinance. In fact mortgage rates have been low for 4 years now and home sales have been very weak considering where mortgage rates have been and household formation.

    I am glad you guys got it that you were juicing the home sales number for 5 years. This gives you a clear low base for existing home sales.
    Also, I can see why you don’t want Freddie and Fannie to sell REO in bulk because you can’t use those numbers for existing home sales. It has to go through an agent correct to be counted as a sales/

    😉