Mortgage Apps Rolling Over

MBA Purchase Index hits a 12-year low.

Wednesday is "Hump Day" for a reason. That's the day we get our weekly reminder from the Mortgage Bankers Association that, for more and more Americans, the prospect of home ownership is a hill too high to climb. Featured periodically in this column, the MBA's Market Composite Index tracks the volume of loan applications for both new mortgages and the refinancing of existing mortgages. That index was down 2.5% from the week earlier on a seasonally adjusted basis.

Almost three of every four loan applications are for refinancing, not surprising given today's low interest rates. If we look only at applications for newly acquired homes, the figures are a source of concern for those looking for a "bottom" in housing. The MBA's seasonally adjusted Purchase Index (charted above) declined for the sixth straight week and 4.7% from the week earlier, reaching a level not seen since November 1997. The weakness was confirmed by data released this morning by U.S. Commerce Department on new-home construction: building starts tailed off 10.6% in October. It would seem that low interest rates (the average rate on a 30-year fixed-rate loan fell to 4.83% last week) are not stimulating sales to the degree hoped for by government officials.

"Now that the Fed’s program [to buy housing debt] has been extended and the government has extended its [first-time homebuyer's tax credit], I would expect things to improve,” economist Christopher Low told Bloomberg News. “If you don’t see an improvement within the next couple of weeks, that would indicate a problem."

[update 11-19-09:]
Let's turn our attention away from new home loans and examine the ones already outstanding. Today the MBA's chief economist, Jay Brinkmann, reported that 14.41% of all home mortgages in the third quarter were either in foreclosure or at least one payment past due. That's one in seven. Four million mortgages were at least 90 days past due or in foreclosure. These figures point to a huge shadow inventory of houses waiting to hit the market. Perhaps that explains the lull in new purchases. Buyers are waiting for fire-sale prices!