Economic Update - Mortgages & Housing

Housing Starts, Mortgage Purchase Applications

On October 17, 2012, in Economic Updates, by Ken Fears, Manager, Regional Economics

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses housing starts and mortgage purchase applications.

§  There were two positive news releases for the housing market this morning; housing starts were up along with purchase applications for mortgages.

§  Single-family starts rose 11.0 in September over the August figure and 42.3% higher than a year ago.  The August number was also revised upward and permits for new construction of single-family units rose 7.6% in September.

§  The single family construction numbers are a positive sign for the market as they suggest that homebuilders feel confident in low inventories and are willing to delve back into the market despite tight financing that often requires self-funding of projects.  While construction is up, the 603,000 single family units started in September (seasonally adjusted at annual rates) was well below the 1.15 million units averaged annually from 1980 to 2007.

§  The purchase portion of the weekly mortgage applications index rose 1% on the heels of a 2% increase last week.   The refinance component fell 5% after a 2% decrease last week.

§  Purchase applications are headed in the right direction, but at low levels.  Lenders have complained of high refi volumes taxing their processes, so the decline on that side of the business should help homebuyers.  It may also help to reduce the spread between banks cost of capital and the rates that they loan at as a decline on the refi side would help to heat up competition for borrowers, passing on more the impact of QE3 to homebuyers.

§  Construction is up, which is a good sign of the sustainability of the low inventory levels which have driven price growth and buyer confidence.  In addition, growth of mortgage applications suggests that demand should remain robust through the end of the year and we may see some further improvement in rates to draw buyers out during the winter months.  However, lending conditions remain tight and an improvement on this front, hopefully with clarification on Basel III and Dodd-Frank (QM and QRM) as we approach January, should help to unlock more demand.

Ken Fears is the Manager of Regional Economics. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.