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Mortgage Apps Up as Credit Loosens: Will Optimism Take Root?

Phil Hall
Jul 09, 2014

This week, the Mortgage Bankers Association (MBA) offered back-to-back servings of upward facing data on a week-over-week basis. However, not everyone across the industry was ready to welcome the numbers as harbingers of a stabilized housing market—especially in view of year-over-year data. The MBA’s Weekly Mortgage Applications Survey found the Market Composite Index increased 1.9 percent on a seasonally adjusted basis from one week earlier while the seasonally adjusted Purchase Index increased four percent from one week earlier. Even the refi side of the industry came along for the ride, with the Refinance Index increased 0.4 percent from the previous week. Separately, the MBA announced earlier this week that mortgage credit availability slightly increased in June. In the latest data from Mortgage Credit Availability Index (MCAI), a report from the MBA which analyzes data from the AllRegs Market Clarity product, the MCAI increased 0.6 percent from 115.1 in May to 115.8 in June; the index was benchmarked to 100 in March 2012. The MBA attributed this uptick to a slight net loosening in lender criteria regarding Federal Housing Administration and Department of Veterans Affairs loans with respect to minimum credit scores and maximum loan-to-value ratios. While the week-over-week numbers were positive, the year-over-year numbers showed that more distance needed to be covered. In the MBA’s Weekly Mortgage Applications Survey, the unadjusted Market Composite Index decreased 19 percent compared with the previous week while the unadjusted Purchase Index decreased 17 percent compared with the previous week and was 10 percent lower than the same week one year ago. Logan Mohtashami, an Irvine, Calif.-based senior loan manager at AMC Lending Group and a financial blogger at, saw the numbers as mixture of positive and bothersome. “The year-over-year trend is still negative, but the year-over-year comps are looking better because the second half of 2013 apps trended down to the spike in rates,” Mohtashami explained. “However, this spring and summer has been weak—we haven't seen strong seasonality demand. The one aspect that can be a factor is that inventory is coming back to the market place now. So, that might draw some buyers to the market place. However, outside of that year-over-year existing home sales will be negative, but new home sales should have eight percent to 12 percent growth.” Mohtashami added that the week-over-week increase could continue next week, thanks to an annual anomaly. “You might get a strong number next week, as its post-July 4th week,” he said. “It usually happens after a holiday week.” Rob McConville, a real estate broker with William Pitt Sotheby's International Realty in Madison, Conn., shared Mohtashami’s mixed feelings. “I would say it leads to some optimism, especially with the economy being more stable,” McConville stated. “The only thing is that in our market, sales were down slightly compared to last year.” Some industry experts are hoping that the new data is reflective of a strengthening market, and by extension, a strengthening economy. “I'd say that this winter's 'pause' in the real estate markets gave buyers time to catch their breath, metaphorically," said Grant Stern, president of Morningside Mortgage Corporation in Bay Harbor Islands, Fla. “We are getting a lot of internet driven lead activity right now, first time buyers and those looking to move up. With price increases leveling off, buyers are seeking deals again.” “All things being taken into consideration, there is reason for much optimism,” said Gibran Nicholas, CEO of the CMPS Institute, headquartered in Ann Arbor, Mich. “Unemployment numbers last week were very positive. When people are employed and have a lot of confidence in their ability to make an income, that has impact on their willingness to buy a house. And houses are very affordable to buyers to purchases, even with the recent uptick in prices. Prices have stabilized versus where they were six years ago.” However, Mike Hardwick, president of Brentwood, Tenn.-based Churchill Mortgage, was cautious about the depth of the recent employment data. “The primary problem, in my personal opinion, with a solid outlook for housing in general is the employment picture,” Hardwick said. “While the unemployment rate went down this past week to 6.1 percent, the vast majority of new jobs being created or part-time and/or low paying ones. Also, the real unemployment rate is probably more in the 12 percent to 13 percent range at a minimum, due to so many being either under-employed or just still not even looking for a job due to there not being enough good paying jobs available.” Hardwick added that he was not ready to predict that housing had finally stabilized. “With prospects for interest rate increases by the Fed looming sometime in 2015, if not sooner, and house prices now beginning to increase, the prospects for a strong housing recovery are really difficult to ascertain,” Hardwick continued. "My guess is that housing will continue a slow recovery that may be very tenuous and easily disrupted by the above-referenced concerns.” And Mario Yeaman, branch manager and senior loan officer at El Segundo, Calif.-based American Capital Corporation, expressed greater concern on the economic environment. “The bottom line is that the state of housing is predicated on our economy,” Yeaman said. “It is a false sense of security. And this is a false economy—the Fed is holding rates down to combat inflation and makes it appear that we’re in good shape.” Nonetheless, Chris Sorensen, director of mergers and acquisitions at Corona, Calif.-based Paramount Residential Mortgage Group Inc. (PRMG) and author of Financial Sense to White Picket Fence, believed that the proverbial glass was closer to half-full than half-empty. “I believe the data, which shows a greater number of 18 to 34 year olds living with their parents, along with a slowly improving economy, despite all the roadblocks thrown in front of it in the last five years, is a viable reason to be cautiously optimistic,” Sorensen explained. “On average, despite the gains fueled by hedge fund investors grabbing as much of the inventory as they could, values till remain approximately 31.5 percent below their 2006 peak. When one factors in the percentage of household income consumed by a mortgage today at—assuming a rate of 4.1 percent—is 15.6 percent on average, compared to 23.5 percent in mid-2006, this is additional cause of optimism. If we can focus on relaxing the recent shackles placed our economy over the last five years and release the economic juggernaut called the American free enterprise system, we will see a steady and continued growth in housing and housing starts that will cause the overall economy to flourish.”
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