Following four weeks of increasing activity, which is typical for this time of the year, the volume of applications to secure a purchase mortgage loan for a home in the U.S. suddenly dropped over the past week, ticking down 3 percent in the absolute and 4 percent on a seasonally adjusted basis, which isn’t customary and despite a drop in rates, according to the Mortgage Bankers Association.
As such, purchase mortgage activity remains down 35 percent on a year-over-year basis with pending home sales in San Francisco proper still down nearly 50 percent despite an uptick in inventory levels.
In the words of the MBA’s Chief Economist: “Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season,” with “relative weakness at the high end of the housing market in recent months” and evidence that “banks may be tightening credit,” none of which should catch any plugged-in readers, other than the most obstinate, by surprise.
If there are no underwriters for the loans because of higher lending standards/higher risk perception, will there be loans to be made even if the rates are low? (rhetorical). IMO, at a macro level, the economy is incapable of supporting these valuations. Pumping it more could turn detrimental for all.
There are always the proverbial non-bank lenders who can step in if they haven’t already.
And if the economy is “incapable of supporting current home valuations”, then valuations should fall. Of course, we have a large contingent of cash-paying institutional buyers willing to buy up property in order to rent it out to people who require, but can’t get, financing for whatever reason, so I don’t expect a large reduction in the price level anytime soon.
Buy up the property with what? Assuming they buy it up with their stash – how do they plan to mitigate against potential loss of valuation in a continued high interest rate environment? And who will provide liquidity to generate employment to pay these rents? If the rates will trend low, why do we have falling buying activity?
What is the incentive for institutional buyer to bid up or maintain current valuations?
IF low interest rates are denied to working class BUT available to institutional buyers, who, having monopolized the buying power could bid down AND then rent it back. That could work.
I am not saying there will be no price reductions. I am saying that there won’t be a crash a la 2007-2009.
You’re correct that institutional buyers, to the extent they exist, will be looking for discounts, and they’ll get a little bit, but you have to keep in mind that supply will be limited. In order to get a crash, I think you need forced selling, and there’s going to be limited forced selling unless we really have a severe and prolonged recession.
WSJ: Higher March Jobless Claims Add to Signs of Cooling Labor Market
Filings for unemployment benefits were higher than previously thought in recent weeks, in a sign of easing demand for workers as the labor market slowly cools.
Initial jobless claims, a proxy for layoffs, reached nearly 250,000 a week in mid-March, roughly 50,000 higher than previously reported, the Labor Department said Thursday. The change reflects revised calculations that strip out seasonal fluctuations in economic activity, the department added.
Or as we outlined last month, Bay Area Employment Drops, Trending Back Down.