Last week the Mortgage Bankers Association revealed that purchase applications are down 35% in the last month showing the after effects of the home buyer tax credit. Further, refinance activity dropped for the first time in month even though rates have remained low. Apparently anyone who could refinance has already done so. Many borrowers aren’t able to take advantage of the low interest rate environment because of negative equity or being unable to qualify.
The week-over-week change showed purchase applications drop by 12% leaving applications at a new 13-year low. The significant drop has many worried that the real estate market can’t stand on its own. In five weeks, the drop is an alarming 42%. To add fuel, inventories are continuing to rise as foreclosure peak.
Take a look at the chart below;
As you can see the visualization of this gives the appearance that home ownership is no longer in vogue and the “double-dip”(in housing) is imminent. Despite pent-up demand for people moving up, many are simply too nervous about the economy to pull the trigger. This recent downturn is foreshadowing a big drop in purchases in the next 30-60 days.
Investors who are flipping houses to owner occupants should take note. It would be surprising if offers are still coming in at a similar pace to the tax credit days. Lastly, as a drop in applications was expected, the mortgage application data over the next few weeks will be critical to get a better idea of a trend forming in a post tax credit world.
Image: Calculated Risk