In the very same day, the following two real estate market announcements were made:
** Mortgage applications increased for a third consecutive week
and
** The sentiment (outlook) of home builders hit its lowest level ever last month
The increase in mortgage applications is undeniably a positive sign, as it indicates the rising confidence of the home buying public that the prices available to them now are too good to pass up. But the historically poor sentiment of home builders appears to say the opposite: That the real estate market is and will remain weak.
It’s the confluence of these two issues that has my attention.
On the one hand, rising mortgage applications is undeniably a good sign. This means that people are actually out in the market making offers on properties and seeking mortgages for financing. Any way you slice it, that’s a positive indicator for the immediate future of the real estate market.
On the other hand, there’s the incredibly low level of sentiment for home builders. I think that’s easily explained by realizing that home builders have to judge the viability of their business based on whether their homes will sell in a reasonable amount of time. And right now, there are so many foreclosures on the market that other homes – and particularly full-price new homes – will have no hope in the competitive scheme of things.
Furthermore, home builders as a group tend to see the economy through a rear view mirror. This means that right now, builders are basing their future building decisions on what’s happened during the past 1-3 years. And clearly, it hasn’t been pretty.
As I said, it’s the confluence of these two indicators that interests me. With a leading indicator (mortgage applications) giving a positive sign and a lagging indicator (home builder sentiment) giving a negative sign, what does it mean?
I believe it means that a bottom in the real estate market is at hand.
Your thoughts, comments and criticisms are welcomed. As always, thank you for visiting FreeRealEstateTraining.com.
UPDATE: The above information was based on news from yesterday (July 16). Here’s some updates for today, July 17:
- Housing starts in June jumped quite unexpectedly by 9.1%
- Building permits increased 11.6% in June
- New construction on single family homes fell
It’s a busy day for me today and I’ll do my best to update you with analysis of this information. But it appears quite positive to me thus far.
Again, thanks for reading FreeRealEstateTraining.com!
I hope your crystal ball is correct. BUT remember, the merger of Countrywide and Bank of America is stil at hand and they have withheld dumping their new foreclosures on the market for the last 60 days. As long as we have high levels of excess inventory the pressure on prices will remain downward. Good for buyers & investors bad for sellers, as many find themselves upside down
Bryan,
The thing I would want to know is what percentage of the increase in mortgage applications relates to refinancing and what portion relates to new home purchases? If the increase in mortgage applications relate primarily to refinance activity on troubled loans, we’d have to curb our optimism a little. Let me know if you have the stats on this. Thanks.
Brian,
I too agree with Nate.. I was going to ask the same question until I read his comment. I wonder also if there is a way to find out what kind of buyer is applying and what the majority of people are qualifying for. My lender here in Arizona tells me he has quite a number of applications on his desk with the majority being for $220K and under. Here in my market $220K can now get a nice starter home for people… I am going after buyers unless underwriting criteria changes and we now have to add gasoline as a recurring debt for qualifying.. (just a joke.. but maybe not)
Nate’s point is valid. Restructures are up as the banks look for alternatives to keep inventory off of the foreclosure books.
Also, while I agree that we might be at or near the bottom of the cycle, I think that the bottom will last another 2 years (as the peak was drawn out). The reason is the 2004, 5 year loan recasts that will happen in 2009. That will put another surge of distressed properties on the books.
I agree that purchase money mortgages are important. But I reject the premise of your challenge to my assertion. Here’s why:
Why Refinances Are Good For The Real Estate Market
Have a great day!
Bryan, I agree with your points in general, once I figured what you meant by Purchase Money Mortgage (in my area PMM means seller carry back).
The fact that banks are making *any* mortgages shows that they have gotten out of the paralysis that has been stifling the housing market. It will also reduce the pain of the next year or two.
I just don\’t think that we are ready for an upturn soon. We spend a long time floating at the peak, buoyed up by series after series of new and more generous loans. I think that we are past the \"house of cards\" phase but we are just getting into the cleanup phase.
That means that the next couple of years are going to be great buying opportunities for the buy and hold investors since real estate is on sale.
Oh, please look at getting a captcha that I can actually read. Attempt #2