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Wednesday brought more mixed news in the housing market as the Mortgage Bankers Association reported that mortgage applications fell last week despite a drop in rates and the National Association of Home Builders predicted housing demand would pick up early next year. The Weekly Mortgage Applications Survey showed a decline of 10.9% in new mortgage applications for purchases and a drop of 23.5% in new refinance applications. MBAA surveyed Fixed Rate Mortgage (FRM) rates remained above 6%, a significant price point recently as applications have picked up most whenever rates dipped below 6%. The surveyed Adjustable Rate Mortgage (ARM) rate was below 7%, but still higher than either reported FRM rate.

The NAHB noted the serious risks to housing demand, but emphasized “the $7,500 tax credit available to first-time home buyers; legislative efforts to address foreclosures; the continuation of affordable mortgage rates; and the availability of fixed-rate mortgage financing through Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Veterans Affairs” as well as drops in prices and rising personal income. They also projected that low builder confidence and tighter credit conditions would result in a further drop in new housing starts – very good news for the inventory glut.

Average Mortgage Rates

30-year FRM: 6.28%, 1.09 points*
15-year FRM: 6.05%, 1.11 points
1-year ARM: 6.97%, 0.4 points

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

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Mortgage Applications Decrease In Latest MBA Weekly Survey

WASHINGTON, D.C. (October 22, 2008) — The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending October 17, 2008.  This week’s results include an adjustment to account for the Columbus Day holiday. The Market Composite Index, a measure of mortgage loan application volume, was 408.1, a decrease of 16.6 percent on a seasonally adjusted basis from 489.3 one week earlier.  On an unadjusted basis, the Index decreased 25 percent compared with the previous week and was down 44 percent compared with the same week one year earlier.
The Refinance Index decreased 23.5 percent to 1158.8 from the previous week and the seasonally adjusted Purchase Index decreased 10.9 percent to 279.3 from one week earlier.  The Conventional Purchase Index decreased 10.5 percent while the Government Purchase Index (largely FHA) decreased 11.9 percent.
 
The four week moving average for the seasonally adjusted Market Index is down 9.2 percent.  The four week moving average for the seasonally adjusted Purchase Index is down 4.9 percent, while this average is down 14.2 percent for the Refinance Index.
The refinance share of mortgage activity decreased to 42.6 percent of total applications from 46.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 2.7 percent from 2.6 percent of total applications from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.28 percent from 6.47 percent, with points decreasing to 1.09 from 1.14 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 6.05 percent from 6.17 percent, with points decreasing to 1.11 from 1.18 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year ARMs increased to 6.97 percent from 6.67 percent, with points decreasing to 0.40 from 0.43 (including the origination fee) for 80 percent LTV loans.

Housing Stimulus ‘Sorely Needed’ As Downside Risks Pile Up, NAHB Chief Economist Says

October 22, 2008 - Congress should consider providing further “sorely needed” economic stimulus to encourage homeownership and limit foreclosures in order to pull the U.S. economy out of recession, NAHB Chief Economist David Seiders said today at the association’s Fall Construction Forecast Conference.
 
The steep decline in sales of new single-family homes should be coming to an end in early 2009, Seiders said, setting the stage for “tepid” improvement in new residential construction later that year. However, he warned, that outcome has grown increasingly uncertain in light of the turmoil that has gripped world financial markets.
 
“Things are a lot worse than any of us had anticipated six months ago,” Seiders said, and the nation’s housing market – which is the root cause of the collapse in confidence among lenders – has continued to spiral downward. “Risks are piling up on the down side. These are tough times, no question,” he said.
 
While remaining reasonably optimistic that a housing recovery is beginning to take shape, “the uncertainties out there are unprecedented,” Seiders said, and there is a growing risk that today’s major housing contraction could get even worse.
 
The level of confidence among builders surveyed in October for the monthly NAHB/Wells Fargo Housing Market Index fell to the lowest point since the series was started in 1985, he noted.
 
“The bottom line is that the financial crisis can’t get much better until the thing that started this thing off, housing starts, gets better,” said Maury Harris, U.S. chief economist for UBS, who also spoke at the conference.
 
On the brighter side, Seiders said that housing in the first half of 2009 should be helped by the $7,500 tax credit available to first-time home buyers; legislative efforts to address foreclosures; the continuation of affordable mortgage rates; and the availability of fixed-rate mortgage financing through Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Veterans Affairs.
 
Citing an increase in pent-up demand for housing, he added that declines in home prices and increases in personal income have helped to restore housing affordability to the more normal levels that existed prior to the peak of the housing boom.
 
However, even as the demand for housing begins to grow, housing production will be constrained by tighter credit for the loans builders and developers need to break ground on new residential projects, he said.
 
NAHB is forecasting 936,000 total housing starts for 2008, a 30.2% decline from the 1.34 million homes produced last year. Starts in 2009 are projected to slide 16.2% further, to 784,000 units, and 2010 would bring production up to the 1.0 million level.