MBA's purchase application index fell back 6.2 percent in the Sept. 25 week while the refinance application index slipped 0.8 percent. The dips come despite rock bottom loan rates including a 4.94 percent rate for 30-year mortgages, the lowest rate since mid-May. At 65.3 percent, refinancings are making up a larger share of total applications as homeowners scramble to lock in low rates and pay down higher rate loans. But the dip in the purchase index, if extended in coming weeks, would point to a slowing for home sales which, though bumpy, are just beginning to recover.
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
This report is in direct contrast to the Case-Shiller report released yesterday indicating prices have turned up.
As we can see by Robert Shiller's original chart, we have a long way to go when reverting to the long term average despite the precipitous drop in prices to date.
We remind the reader that there is a large "shadow inventory" of houses that have not yet come onto the market.
Newly initiated foreclosures were approx 300,000 and foreclosures in progress 500,000 in the 1st Q of 2008.
In the 2nd Q of 2009 newly initiated foreclosures are nearly 400,000 and ones in progress number 1,000,000.
With this kind of volume poised to come on the market in the next six to twelve months, it seems rather unlikely that house prices will continue climbing. Compounding the problem are the number of interest rate "recasts" set to kick in early in 2010 with Alt-A mortgages.
We anticipate that the Case Shiller index will resume its downward descent at some point in the next few months as we revert toward the mean.
Calculated Risk blog has a good article on this topic.