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 the latest mortgage applications data.
- Mortgage applications for both home purchase and refinances rose slightly in the past week. From one year ago, applications for home purchase are down by 10 percent while applications for refinances are lower by a whopping 68 percent. Refinance activity is already touching a decade low and is likely to fall even further next year as mortgage rates increase.
- Mortgage rates will go from a 4 percent average in 2013 to about a 5 percent average in 2014, based on NAR projections.
- Home buying has been completed not only using mortgages but also via all-cash. The cash transactions fortunately have been about one-third of the market in the current environment of extra underwriting stringency.
- Going into 2014, lenders will lend more focus to home purchase applications since refi business will undoubtedly collapse. Banks have huge cash reserves. Mortgage default rates among recent home buyers of the past 3 years have been at historic lows. Market incentives are clearly there for more lending for home purchases.
- The one big unknown, however, is coming from Washington in terms of new mortgage regulations and of the increased lawsuit risks from any small deviation from government directives. A right balance should be pursued to assure consumer protection and rein in the excesses of private sector risk taking. However, too much regulation and too many lawsuits also carry the risk of lessening lending.
- It is worth noting that lenders are not the bad guys. They are channeling people’s savings into other people’s borrowing. A historical lesson is also worth remembering. To gain popular support and to show his distaste for lenders, the Roman Emperor Hadrian held a public bonfire. It was going to be the burning of all the loan documents. As a result all debtors were quickly relieved of their obligations. This action, however, marked the beginning of the end of the Roman Empire. No one in their right mind would further lend afterwards. Without lending, there is no innovation. The Dark Middle Ages, where life was short, brutish, and nasty, descended in Europe and was to last for about thousand years.