Mortgages and Housing Pointing Upward

Similarly, The Mortgage Bankers Association says that its Mortgage Composite Index, which measures the numbers of loan applications, “showed an increase of 5.6% on a seasonally adjusted basis from one week earlier.” What’s more, the index that shows purchases rose for the third week in a row. The short term conclusion: mortgages are pointing upward.

As demand for mortgages points upward, it follows that demand for housing moves in the same direction. With a 10 month backlog of inventory in some markets, this is good news for the economy. It is also good news for home sellers.

However, this uptick in mortgages and housing is creating some consternation in a market that still makes claims to favor buyers. As a residential real estate agent, I find that many buyers are no longer willing to compromise on price. They are holding fast to their figures because they see mortgage rates dropping.

The Mortgage Bankers Association shows that the average mortgage interest rate on 30 year fixed mortgages moved down last week by more than 20 basis points (From 5.38% down to 5.15%). Lower mortgage rates always mean more demand.

Buyers, on the other hand, especially those in the market for the first time, are becoming confused and angry. Because the media has spread tales of blood in the water, these market neophytes think they’ve picked up that scent and they’re ready to scavenge.

Unfortunately, they are behind the curve. The upward trend in housing has been around since early in the year. As I pointed out way back in March, and the Sun Sentinel substantiated in July, there are already bidding wars in process on short sales and foreclosures.

As this information leaks its way past the plethora of bad news, savvy sellers turn bolder, and cash rich investors flood the market buying foreclosures that need fixing up. They see housing demand increasing. These investors fix up the foreclosures and put them back on the market for 80-90% of market value. They, along with sellers who are not upside down on their mortgages, benefit from the fact that mortgage demand and housing demand are pointing upward.

As mortgage demand points upward, new home builders are getting back in the game. But they’re changing the way they do business. No longer do they create cookie-cutter homes with the attitude of “if you build it, they will come.”

Instead, according to Business Week, they’re building to order. This means buyers get the amenities they want, without paying for extras. Also, builders are downsizing the connecting areas of homes. So buyers get the rooms they need, but the halls, stairs, and closets shrink. Pre-fabbed panels also save time and labor cost. Because of these lower costs, buyers feel they can afford newer homes, and they bring their mortgage approvals to the builders.

This cycle feeds upon itself, to everyone’s benefit. Mortgage demand points upward as mortgage rates are low, so housing demand points upward. This demand cuts into the overabundant housing supply, and prices start to stabilize. Homebuilders build to conform to market demand. New mortgages create new and rebuilt homes. This, in turn, creates new jobs, and recovery begins its slow but steady process.

Written by Marc Jablon, Realty Associates
marcjablon@yahoo.com. Tel. 561 / 213 – 6139
www.MarcJablonHomes.com