According to the Mortgage Bankers Association (MBA), in a June 8, 2011 report entitled, “Mortgage Applications Decrease in Latest MBA Weekly Survey” the average interest rate for 30-year mortgages decreased to 4.54%, which is the lowest rate observed since November 19, 2010. Despite the historically low rate of interest, and the seemingly available supply of credit, applications for mortgages are not increasing, as one might expect, but actually are continuing to decline. According to the MBA, as of the week ending June 3, 2011, mortgage loan applications, as measured by the seasonally adjusted Purchase Index, decreased by 4.4% over the course of the previous week and by 3% over the month of May. Looking back even further, applications for mortgage loans are down over 15% on a year-over-year basis as of May 2011.
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Source: Fixed Income Live, “Mortgage Applications: Rates Decline, So Do Purchase Apps” by Nancy Vanden Houten, Stone & McCarthy, June 8, 2011. Mortgage Banks Association (MBA).
While applications for refinancing do not paint as dismal of a picture, the figures have also been on a negative trend since November of 2010. So what gives you ask? It is our contention at Hennion & Walsh that the credit crisis was not, and is not, a question of the lack of supply (or cost) of credit but rather is based on a lack of aggregate demand for credit. In these uncertain economic times, individuals, and companies for that matter, are still focused on deleveraging as opposed to taking on or assuming new debt.
With respect to refinancing, those individuals that could benefit from lower interest rates, and afford the associated cost of the refinancing process, likely have already refinanced their homes. Further, we do cannot imagine mortgage rates going lower than their current historic lows. Hence, we do not anticipate any further significant increases in refinancing activity – which still account for the majority of overall mortgage applications.
As it relates to applications for homes purchases, the backlog in supply of unsold and foreclosed homes is serving as an anchor to the stalling housing market recovery and should curtail many new mortgage applications for some period of time. Finally, we understand that many lending institutions (i.e. Banks) are now asking for higher down payments with new mortgage loans – at a time when many individuals can not afford them. While this, in fact, may be the appropriate stance for lending institutions to now/again adopt with respect to risk mitigation strategies, it will likely not result in any form of an increased demand for mortgages.
As a result of the factors described above, we do not anticipate mortgage applications to noticeably appreciate at any point in the short term.