Mortgage applications fall 40% in May, lowest level since April 1997

posted at 10:55 am on June 3, 2010 by Ed Morrissey

Thanks to an expiring tax credit, the Obama administration got some good news from the housing markets in the last couple of months.  However, the underlying numbers look positively grim, and CNBC’s Diana Olick believes they predict a double-dip recession in housing for later this year.  With mortgage applications hitting their lowest level in over 13 years, she has good reason to worry:

Everybody take a nice long look at today’s Pending Home Sales Index from the National Association of Realtors, because it’s just about the last positive picture we’re going to see for a while. …

This index is based on contracts signed in August, and that’s how the credit was set up; you had to sign your contract by April 30th and close by June 30th in order to get your $8000 if you’re a first time buyer and $6500 if you’re a move up buyer.

And then came May, traditionally the height of the spring housing season.

Mortgage applications to purchase a home began to sink. Now, four weeks later, mortgage purchase applications are down nearly 40 percent from a month ago to their lowest level since April of 1997. Yes, you can argue that a larger-than normal share of buyers today are all cash, but those are largely investors.

That means real organic buyers are exiting in droves.

The tax credit, as I have repeatedly argued, was nothing more than a Cash for Clunkers applied to the housing market.  It artificially inflated demand by stealing future sales and pushing them further up the calendar.  It did not create qualified buyers; it merely incentivized qualified buyers to act immediately instead of later this year or next year.

Now, without the artificial stimulus, we will see a serious deflation of a bubble extended by government intervention in the market.  That’s exactly what happened with the original housing bubble, and it’s not a coincidence that the end of an intervention takes us back to a demand level prior to the bubble’s beginnings in 1998.  The interventions have only postponed the natural revaluation of assets in the wake of irrational inflation over more than a decade.


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

More importantly – where did it snow to slow these sales down…

Odie1941 on June 3, 2010 at 10:59 AM

Mortgages are racist.

Bishop on June 3, 2010 at 11:00 AM

“A double dip recession.”

Geez, who could’ve seen that coming?

The big O is a gidrool.

there it is on June 3, 2010 at 11:00 AM

A good way to get rid of these numbers and this kind of press would be to nationalize all the houses in the US, even the ones without a mortgage, and then put people in them and make them pay rent. Nicer homes could go to party members, probably. Really nice homes could be handed out in exchange for not running in a Democrat primary.

myrenovations on June 3, 2010 at 11:02 AM

And in Hopeys home town as well
======================================
Mortgage applications stuck at 13-year lows

By Mary Ellen Podmolik |

The slide in consumer demand for home purchases continued last week. The Mortgage Bankers Association reported that mortgage loan application volume for home purchases fell for the fourth consecutive week last week and now stand at its lowest level since April 1997. For the week ending May 28, seasonally adjusted application volume fell 4.1 percent, despite the fact that the average interest rate of a 30-year, fixed-rate mortgage remain well below 5 percent.

canopfor on June 3, 2010 at 11:03 AM

Viva la Ponzi Revolution

faraway on June 3, 2010 at 11:04 AM

This is an effing big deal.

rogerb on June 3, 2010 at 11:04 AM

Purchase applications are now almost 40 percent below their level four weeks ago, while the refinance share, at 74 percent, is at its highest level since December,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.

Is this just due to rates going down enough to make refinancing a good deal, or are people who are using their houses as piggy banks included in that? Is there a way to tell?

forest on June 3, 2010 at 11:05 AM

Mortgages are racist.

Bishop on June 3, 2010 at 11:00 AM

Bishop: In this “Historical’ era,apparently,it is so!-:)

canopfor on June 3, 2010 at 11:06 AM

Obama is leading the Ponzi R-evolution

faraway on June 3, 2010 at 11:07 AM

More importantly – where did it snow to slow these sales down…

Odie1941 on June 3, 2010 at 10:59 AM

Hey don’t forget that Memorial Day is in May. That’s it, the holiday brought down the housing numbers casue everyone was out grilling hamburgs and hotdogs and not buying houses. Oh, and they got laid off for that weekend too, so that explains the rise in the unemployment numbers.

See how easy that is?/

Johnnyreb on June 3, 2010 at 11:08 AM

Hope and change baby!

ORconservative on June 3, 2010 at 11:08 AM

Hm. While foreclosures mount and “owners” refuse to leave the property.

maverick muse on June 3, 2010 at 11:08 AM

Lowest level since 1997?

Wow, I thought the Clinton ‘Administration’ was the most awesomest of awesome economic time ever?

cntrlfrk on June 3, 2010 at 11:09 AM

no way out…

no way out…

no way out..

without jobs

DrW on June 3, 2010 at 11:10 AM

OBAMA’S AMERICA

Inanemergencydial on June 3, 2010 at 11:10 AM

More importantly – where did it snow to slow these sales down…

Odie1941 on June 3, 2010 at 10:59 AM
Hey don’t forget that Memorial Day is in May. That’s it, the holiday brought down the housing numbers casue everyone was out grilling hamburgs and hotdogs and not buying houses. Oh, and they got laid off for that weekend too, so that explains the rise in the unemployment numbers.

See how easy that is?/

Johnnyreb on June 3, 2010 at 11:08 AM

Correct, add in Cinco de Mayo in May and these

Odie1941 on June 3, 2010 at 11:10 AM

Lowest level since 1997?

Wow, I thought the Clinton ‘Administration’ was the most awesomest of awesome economic time ever?

cntrlfrk on June 3, 2010 at 11:09 AM

Well, that was roughly when the Y2K scam started… no reason to have a loaded mortgage for 2 1/2 years…

Odie1941 on June 3, 2010 at 11:12 AM

Whoa whoa whoa… you mean continuous government intervention in the economy does not make things all better magically?? But I was promised unicorns and lowering of sea levels by some well-spoken storybook chap standing in front of the Temple of Zeus in Denver!

Wineaholic on June 3, 2010 at 11:12 AM

Look on the bright side…at least the oceans are receding and the Earth is cooling.

ornery_independent on June 3, 2010 at 11:12 AM

The O-cession unexpectedly deepens.

BobMbx on June 3, 2010 at 11:13 AM

Still patiently waiting on that hard pivot to job creation……….*crickets*

search4truth on June 3, 2010 at 11:13 AM

MBA: Mortgage Purchase Applications lowest level since April 1997
————–

Heres a real nice graph,from Jan 1990 all the way up,

This graph shows the MBA Purchase Index and four week moving average since 1990.
============================================
http://calculatedriskimages.blogspot.com/2010/06/mba-purchase-index-june-2-2010.html

http://www.calculatedriskblog.com/2010/06/mba-mortgage-purchase-applications.html

canopfor on June 3, 2010 at 11:13 AM

C’mon Wineaholic, you were never promised unicorns.

ornery_independent on June 3, 2010 at 11:14 AM

i really wasn’t, uh…


expecting this.

blatantblue on June 3, 2010 at 11:14 AM

The only organic item I prefer is an organic economy. No artficial fertilizers required (i.e., no government interventions and distortions).

WashJeff on June 3, 2010 at 11:18 AM

i really wasn’t, uh…


expecting this.

blatantblue on June 3, 2010 at 11:14 AM

blatantblue: Um..ah..BB..um…ah..I…I..think.ah..um..

Hopey..ah..should..ah..um..just plug..ah..

the..dam*..ah..mortagage..ah..um..application

ah..um……..hole——————-:)

canopfor on June 3, 2010 at 11:19 AM

Mortgages free markets, largely unobstructed by governmental distortions, are racist.

Bishop on June 3, 2010 at 11:00 AM

FIFY.

BuckeyeSam on June 3, 2010 at 11:19 AM

We’re not giving $8,000 to first time homebuyers anymore, so yeah, fewer people are buying homes now. Go figure.

dczombie on June 3, 2010 at 11:21 AM

uh oh. I hope you already bought your gold and MREs.
I have.

barnone on June 3, 2010 at 11:22 AM

Whoa whoa whoa… you mean continuous government intervention in the economy does not make things all better magically?? But I was promised unicorns and lowering of sea levels by some well-spoken storybook chap standing in front of the Temple of Zeus in Denver!

Wineaholic on June 3, 2010 at 11:12 AM

Wineaholic:

If you where at the Temple of Zeus,you would of had the first batch of of the Hopey/Changey Roman Pillars Of
Perpetual Hope and NeverEnding Change KOOL_AID and would
of seen those MILLIONS OF JOBS,and a whole parade of
UNICORN PRANCING CIVILIAN NATIONAL SECURITY FORCES!!!!!
———-:)

canopfor on June 3, 2010 at 11:25 AM

SMART Power!!!!!11111!!!!!eleventy

Take a look at this and understand why liberals, particularly this super far left administration and congressional leadership, will always screw the economic pooch.

http://volokh.com/2010/05/06/the-further-left-you-are-the-less-you-know-about-economicsr/

jukin on June 3, 2010 at 11:26 AM

C’mon Wineaholic, you were never promised unicorns.

ornery_independent on June 3, 2010 at 11:14 AM

What do I do with the one I got on my back porch?!?

Dire Straits on June 3, 2010 at 11:29 AM

C’mon Wineaholic, you were never promised unicorns.

ornery_independent on June 3, 2010 at 11:14 AM
What do I do with the one I got on my back porch?!?

Dire Straits on June 3, 2010 at 11:29 AM

Send it over to me. Ground up they make great dog chow.

Johnnyreb on June 3, 2010 at 11:32 AM

I don’t think the program was very successful, anyway. The banks are balking on short sell deals. The sellers are balking on taking low prices. The appraisers are coming in way below offers, anyway, making loans impossible.

The program had limited impact, in other words.

AnninCA on June 3, 2010 at 11:33 AM

Hey, I’ve got an idea… let’s use the Community Reinvestment Act to incentivize and cajole banks into giving home loans to people who can’t pay them back. It worked last time!

theCork on June 3, 2010 at 11:36 AM

Hold onto your hats and glasses….(and wallets)

Fighton03 on June 3, 2010 at 11:36 AM

“Idiots vote and we pay the price,
of living in a Democrat paradise.”

Hening on June 3, 2010 at 11:36 AM

The program had limited impact, in other words.

AnninCA on June 3, 2010 at 11:33 AM

Oh it had an impact all right. It compressed about 2 years of normal house sales into less than 12 months. That is going to leave a mark on the housing market for the rest of the year.

Johnnyreb on June 3, 2010 at 11:38 AM

I just want to sell my house.

Cindy Munford on June 3, 2010 at 11:38 AM

Great. Now the company I have been consulting for has an excuse not to hire me fulltime.

My neighbor’s house finally sold after being on the market for over a year, so I am hoping the mnarket where I live is recovering; but it may have been a tax credit-driven sale that means little. (At least it was bought by a family and not an investor.)

rockmom on June 3, 2010 at 11:40 AM

Oh, by the way, a new report this week said that 98% of all mortgages in the first quarter were either bought by Fannie Mae/Freddie Mac or guaranteed by FHA.

Welcome to our new world of government-controlled housing.

rockmom on June 3, 2010 at 11:42 AM

Ed:

Fix the Pending Home Sales Index link…

PatriotRider on June 3, 2010 at 11:42 AM

Oh it had an impact all right. It compressed about 2 years of normal house sales into less than 12 months. That is going to leave a mark on the housing market for the rest of the year.

Johnnyreb on June 3, 2010 at 11:38 AM

In which market? The condo market? My kid has been working hard to buy in CA SF market. The banks aren’t budging.

They are the perfect first-time homebuyers, too…..income, good credit, etc., and the prices “listed” are perfect. No go from the banks.

They are not letting go of anything.

AnninCA on June 3, 2010 at 11:43 AM

Everybody take a nice long look at today’s Pending Home Sales Index from the National Association of Realtors, because it’s just about the last positive picture we’re going to see for a while.
===================================

All hail,the Glorious Negative Consequences of Hope
and Change,feel the country moving into an era of Doom
and Gloom!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

A Magnificent Testamount of a 2 Year Senator,feel the
overwhelming pride,as this President watch’s America slide
into Hopey’s Abyss,from a Failed Social Justice Engineering
and Forty-Years of Liberalism Architecture,that has lead and
cultimated to this Audacious Time in this most “HISTORIC”
point in time!!

canopfor on June 3, 2010 at 11:44 AM

Oh well, at least a few people had jobs for awhile processing the paperwork.

AnninCA on June 3, 2010 at 11:44 AM

Talking Heads “Burning Down the House”

http://www.youtube.com/watch?v=xNnAvTTaJjM

canopfor on June 3, 2010 at 11:51 AM

Unexpected, of course.

I hate these effing tools in Washington. They are dragging this thing out much longer than was ever necessary. We should have ripped the Band-Aid off quickly. It would have been ugly of course, and people would have been out on the streets looking for rentals instead, but so what? If you can’t afford the d@mn house, the govt. has no business propping you — or the banks — up. Only a moron couldn’t have seen this coming. It’s no different from Cash for Clunkers; you cannot artificially stimulate the economy back to health. Now people like me who are trying to sell are screwed again.

The day that these people are finally out of power cannot possibly get here soon enough.

NoLeftTurn on June 3, 2010 at 11:51 AM

I guess we can all work for the Census and live in HUD housing forever.

PattyJ on June 3, 2010 at 11:53 AM

AnninCA on June 3, 2010 at 11:43 AM

Maybe that’s true in California, where the housing market is always totally disconnected from reality, but it’s not true in Florida. There is such a glut of condos on the market in Central Florida, and so many are bank-owned, that the prices have been deflated over 55% in a year’s time. They are now artificially low by many people’s estimation. What are we sellers supposed to do? A bank is selling a unit in my complex for 25% of the appraised value. They just want this inventory off their books. It’s practically impossible for traditional sellers to compete with that. Where’s our bailout?

NoLeftTurn on June 3, 2010 at 11:59 AM

AND I should add that there is no — and I do mean none — financing available for condos in the area. This means our only hope to sell is an investor or some retired couple prepared to pay cash. That really limits the number of potential buyers. The home buyer’s credit had no impact at all on the condo market b/c no one could borrow the money to be able to take advantage of it.

NoLeftTurn on June 3, 2010 at 12:02 PM

houses probably worth 8k less than what have been selling for

jp on June 3, 2010 at 12:12 PM

live in a new construction development by a major US Builder. They built alot of inventory this spring, and its obvious at this point they thought it would sell by now. So in this development they have 3 of each model basically finished and what they’ve done is called off the finishing touches of the newer models till the existing completely finished of same floor plan sell.

jp on June 3, 2010 at 12:16 PM

The program had limited impact, in other words.

AnninCA on June 3, 2010 at 11:33 AM

It had enough of an impact to make it look like the housing market was recovering.

chemman on June 3, 2010 at 12:21 PM

The day that these people are finally out of power cannot possibly get here soon enough.

NoLeftTurn on June 3, 2010 at 11:51 AM

Even then you are SOL because it will be years before the housing market rebounds.

chemman on June 3, 2010 at 12:24 PM

And Fannie and Freddy just keep on making their interest only loans too. And I’d bet a large number of them are to illegal aliens.

Oh well. Like the commercial says: “It’s My Money And I Want It Now !!!”.

BowHuntingTexas on June 3, 2010 at 12:30 PM

Oh well, at least a few people had jobs for awhile processing the paperwork.

AnninCA on June 3, 2010 at 11:44 AM

Oh well, at the least the government wasted a bunch of my money to pay people to process paperwork for a useless and counter-productive program.

PackerBronco on June 3, 2010 at 12:34 PM

No worries. Now that “strategic defaults” are what all the cool kids are doing, we’ve got nothing to worry about! Banks have lots of money, right? They can take it. Uh… it’s Bush’s fault… and BP… and… uh… Cheney. Hey, it’s Arizona’s fault, those racists! Plug the damn hole! And hurry, I have a noon tee time.

Sugar Land on June 3, 2010 at 12:37 PM

Well the ‘cash for clunkers’ housing program LOOKED GOOD!

And if there’s one thing this administration specializes in, it’s LOOKING GOOD. Ever seen a termite infested piece of wood? Looks GREAT on the outside.

GarandFan on June 3, 2010 at 12:40 PM

Hey, I’ve got an idea… let’s use the Community Reinvestment Act to incentivize and cajole banks into giving home loans to people who can’t pay them back. It worked last time!

theCork on June 3, 2010 at 11:36 AM

I guess you’ve seen the new FHFA guidelines then!
“FHFA Proposes Rule on Fannie Mae and Freddie Mac Requirements for Underserved Markets” 6/1/10

singer on June 3, 2010 at 12:51 PM

Is this just due to rates going down enough to make refinancing a good deal, or are people who are using their houses as piggy banks included in that? Is there a way to tell?

forest on June 3, 2010 at 11:05 AM

As a refugee from the mortgage lending business, it is my perception that the refinancing going on is purely rate-driven, and isolated to longer-term homeowners. There are two reasons why:

- Home values have not recovered one whit from the plunge, so anyone who bought in the past five years on a 100% LTV or an FHA structure has no lendable equity in their home. Their home won’t appraise for what they paid for it.

- And there are new, more stringent requirements for cash-out refinancing, especially related to appraisals but also to loan-to-value ratios and loan purpose.

I am pretty sure that the drop in applications reflects the affect of the government’s stupid tax credit for buyers, which has sucked demand out of the short term, just as it did in the cash for conmen programs.

Jaibones on June 3, 2010 at 1:00 PM

1997 was about the time the housing market started the run-up that lead to the bubble that burst. The link that canopfor posted shows the graph of the application rate, and it almost mirrors the price run-up, at least where I live. People wanted to buy on a rising market (a lot like stocks!) because they knew/thought they could sell for a profit in a year or two. People only buy in a declining market if they have a really good reason to do so, along with investors who think the market is bottoming out.

Homes are still selling fast in my area. My mother-in-law moved down to our area from the SF Bay area early this year. Her house in the SF Bay area sold in less than two weeks. The house she bought down here was on the market for less than a week and had back-up offers besides hers. Most houses in my development have sold in less than a month if priced fairly, and not much longer than that when priced high, so there is activity out there on the banks part if the situation is right.

Count me in on the refi numbers. Just took my loan from 30 to a 15 year at a much lower rate, though if I had waited another month the rate would have been even lower.

Snidely Whiplash on June 3, 2010 at 1:20 PM

How many of those first time buyer apps were for foreclosures?

Even the high number of apps using the tax credit are a shameful reminder of the people losing their homes and equity to folk who paid a penny on the dollar

In Michigan the housing crash began 2 years ago.

First there were For Sale signs every where. People were trying to relocate for new jobs, or sell before they lost the home, or just get some equity to live on.

Stage 2, after a year of For Signs covered with cobwebs, broke homeowners either stopped trying, or went into foreclosure.

Stage 3 last year gave a spattering of new For Sale signs, mainly for revamped foreclosures. The buyers, lucky young twenty-thirty somethings moving out of their parent’s basement into 10K bargains

My brother lives in a million dollar+ home in Northern CA filled with silicon valley wealth. He told me suddenly the stable neighborhood is filled with For Sale signs. One neighbor after a year and a half without work has his home up for sale. An engineering job fair my brother attended had four booths (instead of the usual hundred), two were job agents, one the FBI, and the fourth he never found out who they were because the line was so long the fair closed before he got to the booth. He said the crowds were mostly 40+ mature workers being dumped

The wave is hitting previously untouched employment categories and it is just beginning.

entagor on June 3, 2010 at 1:21 PM

Oh, and surely the housing market won’t rebound until the jobs market rebounds. Since the fools in charge of the Federal government (Congress and WH) have no clue about economics, don’t expect that to happen any time soon. One can only hope that the bad unemployment numbers will translate into some change in the elections in November, with more fiscal conservatives being elected by both parties.

Snidely Whiplash on June 3, 2010 at 1:24 PM

Obama = delaying cyclical market adjustments across the world since 2008

Good Lt on June 3, 2010 at 1:28 PM

no way out…

no way out..

without jobs

DrW on June 3, 2010 at 11:10 AM

worth repeating

Nationalizing healthcare at least preserves healthcare jobs which are tanking in my region.

However, a nation which sustains an economy by printing paychecks for the majority of its citizens ends up like Greece.

As I understand, Greece is re structuring part of its debt: the part used to cover National Healthcare.

Greece has been borrowing from other nations to pay for National Health. Of course, since we are running negative, we will be following Greece right into the ocean

entagor on June 3, 2010 at 1:40 PM

So does this mean BarryO has to return his Nobel Prize in Home Mortgages?

Robert17 on June 3, 2010 at 2:51 PM

Don’t forget the “musical chairs” effect. Standard economics assumes on average a 40 year housing cycle — that is, a house is expected to last for 40 years, then be torn down and replaced. Of course in the real world it doesn’t quite act like that — obviously there are 60+ year or more old houses out there. But in fact on average that is pretty much true. So — bearing that in mind, then a key factor in the housing market is whether or not there is a growing increase in people that need a place to live. Since about 2% or so of the available housing stock disappears each year (teardowns, fires, etc.) then if there is a slowly growing population IF there are no new houses built THEN after a few years there are not enough apartments, condos, and houses available. At that point prices rise again — and stimulate the home building industry.

5 years from now, no matter what, this problem will be over.

SunSword on June 3, 2010 at 4:05 PM

Book of Jeremiah stuff right here.

abobo on June 3, 2010 at 4:44 PM

Trust the Aussies to hit the nail on the head with this video guide to deficits. It’s amusing – but also frightening at the same time…

callingallcomets on June 3, 2010 at 6:56 PM

Trust the Aussies to hit the nail on the head with this video guide to deficits. It’s amusing – but also frightening at the same time…

http://www.theagedp.com/?p=637

callingallcomets on June 3, 2010 at 6:57 PM