Learn How To Start Investing In Real Estate
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Mortgage Applications & Builder Sentiment Provide Encouraging Fall Outlook

Written by Than Merrill

Despite a relatively slow summer for the housing sector, experts have expressed confidence in the looming fall and winter seasons. Perhaps even more encouraging, however, is the recent increase in mortgage applications. In the face of rising mortgage rates, applications surged in the last week. Mortgage loan rates rose on all types of loans for the week ending September 12. According to the Mortgage Bankers Association (MBA), the total volume of applications in the United States increased a rather sizable 7.9% over the same week.

While the rate in which homeowners are refinancing in today’s market is still down 22.5% over the past year, the previous week saw refinance applications jump 10%. Mortgage applications to purchase a home rose 5% from the previous week but are down 10% on the year.

“Given the volatility in activity around the long weekend, it can be helpful to look at the change over a two week span: refinance applications are down 1.4 percent while purchase applications are up 2.1 percent,” said Mike Fratantoni, MBA’s Chief Economist.

With the latest increase, the average rate on a 30-year fixed-mortgage (with a balance of less than $417,000) increased from 4.27% to 4.36%. That is the highest rate for a 30-year fixed-mortgage since June. And still, mortgage applications proceeded to increase. Such activity could be just what the market needs to gain traction.

“Regardless of the seasonal volatility in the applications numbers, the bigger issues remain. Rates had been stagnant at their lowest levels of the year until moving higher fairly quickly in September, in part based on speculation that today’s [September 17th] Federal Reserve announcement would accelerate the rate hike timeline,” said Matthew Graham of Mortgage News Daily. “While the Fed’s policy rate doesn’t directly affect mortgage rates, the indirect effect of such a shift could mean that rates continue moving higher, and that would only be bad for refinance demand.”

With mortgage applications rising in conjunction with rates, analysts remain confident that the housing sector is on the right track. It would appear that builders share the same sentiment. In fact, builder confidence has recently hit its highest level since 2005. For the fourth consecutive month, sentiment within the industry rose. The National Association of Home Builders/Wells Fargo Housing Market Index jumped 4 points to 59. For comparisons, anything over 50 is a good sign. Just four months ago, the index was as low as 45.

“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

The housing market index that accounts for building industry sentiment is comprised of three main components: current sales conditions, traffic of prospective buyers and expectations of future sales. Current sales conditions and traffic of prospective buyers each rose 5 points to 63 and 47, respectively. Future sales, however, experienced a slightly less encouraging increase, as it rose 2 points to 67.

Of the three indicators, buyer traffic is anything but uniform. Younger buyers, or millennials as they have come to be known, remain inactive within the housing industry. Due, in large part, to weak job growth and high prices, millennials are essentially unable to secure the funding necessary to purchase a new home. Having said that, they are turning towards rental units despite nearly record high rates. Compounding the issue, are rental rates that are so high that they prevent young adults from establishing a down payment for future purchases.

“While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from millennials and first-time homebuyers,” said the NAHB’s chief economist, David Crowe. “Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor.”