The Latest on Mortgage Applications and GDP

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 applications and GDP.

  • The number of people applying for mortgages to buy a home fell for the second straight week, though it still remains 5% higher than one year ago. Though mortgage rates did not meaningfully change over the past week, the recent higher rates compared to the beginning of the year are giving some would-be homebuyers pause. All-cash sales are not picked up in this data and cash has been making up about a third of all transactions.
  • Refinance applications, meanwhile, are tanking. They are down 60% from one year ago. Though depressing for mortgage brokers, one positive piece of news for REALTORS® in this collapsing refinance activity is that resources and staff time are freed up to handle purchasing application with more focus.
  • Be warned that mortgage rates will tick higher over time. There may be a few weeks of a reverse trend, but the general direction will be higher mortgage rates. NAR’s forecasting model predicts rates rising to 4.7% on a 30-year mortgage by year end and to 5.3% by the end of 2014.
  • In separate economic news, the GDP rose at a sluggish clip of 1.7% in the second quarter. Past data – going all the way back to 1929 – were revised, though modestly. The prior quarter data revision was notable, as it showed a growth of a meager 1.1%.  The historical normal growth rate is 3% and should be closer to 4% to 6% after a recession. Unfortunately we do not yet have decent economic expansion.
  • Housing is one bright spot and is doing its job. The residential investment portion of the GDP rose by a healthy 13% in the latest quarter. Consumer spending was also helped as housing wealth rose. In short, without the housing market recovery the U.S. economy would more closely resemble Europe, where they face economic recession with job losses.
  • Generally, economic growth will be the key to greater income mobility, and naturally greater residential mobility of wanting better houses. In countries with slow expanding or non-existent GDP growth, people on the bottom generally stay at the bottom while people on the top remain at the top. In countries with fast GDP growth, many of the previously poor rise to the middle class ranks or even higher. China, for example, through its growth-oriented policy after the death of Chairman Mao, has lifted 500 million people out of poverty with some becoming millionaires (who then buy houses in the U.S.). Strong economic growth not only creates jobs, but it is the way to really shake things up in terms of income mobility. NAR forecasts that GDP will steadily improve and growth will be 2.6% in 2014.

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.

More Posts

  1. Have you seen Mortgage Purchase and Interest rate charts.. We were at 14% positive now down to 5% and if trend continues at risk for a NEGATIVE YOY read in 2013

    #1 Sideline buyer myth has been debunked

    #2 Housing Inflation what I warned the NAR about in May should have been your first concern…. the timing is perfect.. So I do give you kudos for realizing that housing inflation is starting to bite the market