Notes from Jim Haughey

May 25 2007 4:33AM | Permalink | Email this | Comments (0) |
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By Jim Haughey

The recent rise in mortgage applications to purchase a home is not likely to lead to a parallel rise in home sales. Rather, the increase in applications stems from significant structural changes in the mortgage market.

The Mortgage Bankers Association of America index of home purchase applications rose to a four week average of 434 on May 18th. This is the highest index value since a 444.6 reading on February 6th, 2006. The index dipped to 381.5 on October 27th, 2006.

Fewer applications now result in home purchases because tighter underwriting standards have raised the application rejection rate. Also, the index is a survey of MBA members only. These typically well established mortgage brokers are getting a higher share of mortgage applications as many relatively new brokerages focused on nontraditional mortgages have been forced to close.

The amount of upward bias in the index is not possible to calculate. But it is likely enough to mean that the recent rise in applications does not signal an improvement in home sales. But it is also not likely enough to mask a worsening of home sales.

Reed Construction Data’s assessment is that home sales remain approximately stable nationally but huge regional differences remain. First quarter existing home sales increased in 12 states from a year earlier — which was the peak of the national housing boom — according to the National Association of Realtors. This includes the huge markets in Texas and New York and the very sizable markets in Massachusetts, New Jersey, North Carolina, Missouri and Colorado. Nationally, existing home sales fell 6.4% from a year earlier.

Sales fell much more sharply in the hot housing market of 2004-05. The year-to-year change in existing home sales was -13.6% in California, -14.3% in Arizona, -25.1% in Florida and -37.4% in Nevada. The worst is yet to come in these markets where home purchase affordability is so low relative to the rest of the country.