Purchase mortgage applications dropped to near record lows last week as government programs to suppress mortgage rates first failed to stimulate demand, and now seem to be failing to suppress rates. Zillow sales volume data now confirms that this September was by far the worst September since the housing collapse began. Since then, purchase mortgage applications have remained near record lows. That means that housing sales data to be reported over the next two months will continue to be terrible. Data from Housingtracker.net as of mid November shows that price declines are actually accelerating. Meanwhile shadow inventory will continue to feed into the supply with the inventory to sales ratio already near record levels. Supply demand imbalances will grow increasingly unfavorable.
We’re now entering the time of year when employers usually begin cutting permanent workers. It remains to be seen if the $105-110 billion a month of money printing under QE2 will cause employment to expand, and whether that would be sustainable after the pumping ends ends. Moreover, we are a long way from achieving the kind of employment recovery that’s likely to result in a meaningful absorption of the housing oversupply. Employment increased this year and the effect on housing absorption has been nil.
Mortgage purchase applications fell in the week ended November 12 leaving them barely above the absolute lows, recently unresponsive to the record plunge in mortgage rates. Now an uptick in mortgage rates threatens to shut down what’s left of a barely functioning market. The Fed’s strategy to drive down long term rates to stimulate the housing market has failed miserably and now it looks as though an even larger program of QE2 may turn out to be an even bigger bust.
Photo: Lee Adler
Applications are now down 12% versus this date last year which itself was in the vacuum that followed the ending of the first homebuyer’s tax credit. They are down 38.5% since the end of the second homebuyers’ tax credit, and down 28.8% since April 2009 when mortgage rates made their last previous low. Applications are down 66% since the May 2005 peak. Rates are currently approximately 16 basis points lower than they were in April 2009 and yet sales are far weaker.