Thursday, June 7, 2007

Mortgage loan applications slip

Mortgage loan applications declined 1.7% last week. The Mortgage Bankers Association reported a 6.1% drop in the Refinance Index from the previous week, and a 1.5% increase in the Purchase Index. This is somewhat surprising, as analysts believe that more and more homeowners who took out adjustable-rate mortgages in recent years should be refinancing.

Meanwhile, the National Association of Realtors (NAR) released an interesting statement. “Home sales are projected to move in a relatively narrow range with a gradual upturn” toward the end of the year, nothing new here. According to senior economist Lawrence Yun, “Overall housing levels are historically strong”, whatever that is supposed to mean, “but sales remain sluggish”. To me, this sounds like trying to make bad news seem good. Nothing new… He goes on to say that, because fewer high-cost homes are being purchased, the median existing-home price is being distorted, meaning that home prices are actually moving upwards, contrary to statistical data. He cites Freddie Mac’s price index as a more reliable source of information, showing that prices are actually rising, not dropping. Indeed, prices have increased somewhat in the first quarter of 2007 compared to the final 3 months of 2006, but the growth rate is only a fraction of what it was a year ago. “House price appreciation did not keep pace with the overall level of inflation during the quarter”, says Freddie Mac’s Frank Nothaft. He also added that national home price growth will probably slow down even more and price declines are expected “in many parts of the U.S.”.

Yun believes that “buyers today need to have a traditional view that housing as a long-term investment is an added benefit”. Nothing new here either, but it seems most buyers are still waiting on the sidelines for better prices and interest rates. Will a public statement from a trade group official make them change their minds?

NAR’s “U.S. Economic Outlook” forecasts price declines for both existing and new homes for the rest of the year, and predicts a 6.6% 30-year mortgage rate for Q3 and Q4. All this sounds a little saner than Lawrence Yun’s allegations, but who knows, the forecast might be amended anytime.

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