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New Housing Data: Time for Champagne or Rolaids?

Phil Hall
Aug 06, 2014

In reviewing the latest housing data, it is hard to determine whether industry professionals should be reaching for a glass of well-chilled champagne or a cup of fast-working heartburn medicine. For those who favor the bubbly stuff, the Mortgage Bankers Association (MBA) offered data that favored a pop of corks. The MBA’s Weekly Mortgage Applications Survey for the week ending Aug. 1 found the Market Composite Index increased 1.6 percent on a seasonally adjusted basis and one percent on an unadjusted basis from one week earlier. The Refinance Index was even more vibrant, increasing four percent from the previous week and driving the refinance share of mortgage activity up two percentage points to 55 percent of total applications, the highest level since March 2014. The weekly numbers had some bitter residue—the seasonally adjusted Purchase Index decreased one percent from one week earlier, while the unadjusted Purchase Index decreased two percent compared with the previous week and was 14 percent lower than the same week one year ago. But the disappointing Purchase Index numbers were overshadowed by yesterday’s MBA Mortgage Credit Availability Index (MCAI) report. According to the MBA, the MCAI increased 0.5 percent from 115.8 in June to 116.4 in July. The MBA attributed July’s increase to a rising number of jumbo adjustable-rate mortgage programs and the increased availability of high balance Federal Housing Administration and Department of Veterans Affairs loan programs. More positive data from yesterday came via CoreLogic’s June Home Price Index report, which found home prices nationwide increased 7.5 percent on a year-over-year basis. On a month-over-month basis, home prices nationwide increased one percent in June. CoreLogic’s numbers included distressed sales in the mix, which can be seen as a blessing for those eager to get the problematic properties off the market. And even more good news was found in the Federal Reserve’s newly released July 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices. The majority of 80 large domestic banks and 24 U.S. branches and agencies of foreign banks participating in the survey stated that the Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act (the ATR/QM rule) had no effect on the approval rate of prime conforming mortgages. But, not of all the latest data warranted a toast to good fortune. The Fed also reported that half of its survey’s respondents indicated that the ability-to-repay (ATR) and qualified mortgage (QM) rules reduced approval rates on applications for prime jumbo home-purchase loans and non-traditional mortgages. And another new study by the National Association of Home Builders (NAHB) determined that every $1,000 increase in the cost of a new median-priced home price would result in 206,000 prospective buyers being shut out of the market. The NAHB pointedly blamed higher costs connected to federal and state regulations for jacking up home prices beyond the affordability ranges for many people. So, do the latest numbers leave that proverbial glass as being half-full or half-empty? “I see it both ways,” said Linda Schulte, real estate agent with Longwood, Fla.-based Infinity Real Estate Group. “I’m seeing prices increasing significantly year-over-year, but we’re not going to see the 13 percent to 22 percent increases like we had. From the research I’m pulling, we’re on track for a 3.5 percent yearly increase.” Schulte acknowledged that potential homebuyers in her Central Florida market have been somewhat apprehensive on how the housing environment is unfolding. “I have some buyers thinking we’re going into a bubble,” she continued. “But I’m not seeing a bubble. I am seeing an even buyer/seller market.” Still, Schulte admitted the NAHB data should be taken seriously. “As interest rates, which they are predicted to do, it knocks people out of being able to afford homes,” Schulte warned. Joe Dahleen, senior vice president at Seattle-based Primary Capital Mortgage, agreed with Schulte’s diagnosis. “As long as interest rates are low, affordability is better,” Dahleen said. “I say that the homebuilders’ data is equally important as the MBA’s data, but as for how real that 206,000 number is, I don’t know.” Yet 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, was not agitated over the prospect of rising rates. “Rising rates are typically indicative of a strengthening economy,” he explained. “While rising rates have an impact on refinance activity, history proves their impact on home purchases is offset by stronger economic growth overall. Fears of hyperinflation along with higher rates are unfounded.” Sorensen added that he saw the week’s positive data as the direction where the industry is heading. “I predict more inventory is to come as the economy strengthens and this will have downward pressure, or at a minimum, a stabilizing effect on home prices,” Sorensen said. “The variable will be if private capital begins to enter the market and thereby loosen credit standards in the process. Access to credit is what drives values as much if not more than other factors. In brief, I’m more ‘happy’ about the [MBA and CoreLogic] data than I am ‘worried’ about the [NAHB] warning.” But on the other side of the argument, Dr. Anthony Sanders, Distinguished Professor of Real Estate Finance at George Mason University in Fairfax, Va., and author of the Confounded Interest blog, did not believe the MBA’s weekly data was reason for taking out the champagne. “The residential mortgage industry continues to remain in ‘Death Valley’ since 2007,” Dr. Sanders wrote in his Confounded Interest blog. “The seasonally adjusted Purchase Index decreased 1.30 percent from one week earlier. And remains in ‘Death Valley’ since 2007 due to the decline in qualified borrowers being able to meet DTI and LTI requirements. The Refinance Index increased 3.81 percent from the previous week. While this sounds like an impressive increase, it is really a flea on an elephant.”
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