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- More people applied for mortgages to buy a home in the past week (8.8 percent increase). Despite the weekly increase, the overall trend to obtain mortgages has not been too encouraging. It is down by 16 percent from one year ago and has been bouncing around at 15 year lows.
- Good thing all-cash transactions are partly making up for the sluggish mortgage market. Cash sales have been running at around one-third of transactions in recent years, compared to a historical norm of around 10 percent.
- Because of huge cash reserves held by financial institutions there is abundant incentive to lend more. Recent delinquency trends at near historic lows for mortgages originated in the past four years should also be an added incentive to lend more. Moreover, we have a housing shortage situation which assures further price gains. And when prices rise, people do not default. The financial industry profit levels have been sky high of late.
- The very low mortgage default rates are the reason why Fannie and Freddie have been raking-in huge profits lately. It is unclear why Fannie and Freddie now still charge high guarantee fees even after having paid back the taxpayers’ bailout money. The extra profit is going straight to the U.S. Treasury, where money is dispensed for all government programs, such as buying fighter jets and food stamps. But why should homebuyers pay the extra fee so that government can get the extra revenue in this fashion, when the sole mission of having Fannie and Freddie is to support the real estate sector and not national defense or welfare programs?
- Meanwhile, because mortgage applications remain mostly lackluster because of excessively tight underwriting conditions, renters are not converting into homeowners. Rental households have risen by seven million in the past decade while homeowner households have increased by only one million. The homeownership rate has plunged as a result.
- Though not everyone can be nor should be a homeowner, limiting many good renters to be stuck being renters raises serious social issues. Past research has shown that children of renters compared to that of homeowners vastly underperform at school (after accounting for socioeconomic demographic factors). Renters are less likely to give to charities or get involved in community activity. Is the country moving unnecessarily towards a renter nation?
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