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After a stretch of improvement in home sales, starts and prices, news in the housing sector has again turned weak with the report last Thursday of a drop, rather than the expected increase, in both housing permits and starts. The report Monday on existing home sales for October could show an improvement affected by the first time homebuyer tax credit, which at the time was scheduled to expire November 30, meaning that to qualify for the credit a transaction had to close by that date. Longer term, though, there are several threats to housing.
The sharp drop we’ve seen of late in purchase mortgage applications points to a negative turn. The Mortgage Bankers Association purchase application index reported last Wednesday was at 210, its lowest level in 12 years. The drop continued a steady slide in mortgage application activity, While the tax credit was in effect, the index topped at 306, compared with the 2008 full year average of 345.
The MBA application report followed an equally discouraging report from the Federal Reserve in its quarterly survey of bank lenders, which was seen as a “positive” in that fewer lenders reported tightening credit standards since the last report three months earlier. It is all in how the report is read, however. The data are “diffusion index,” which means the percentage easing standards is subtracted from the percentage tightening to produce a net result, The latest report showed virtually no lenders easing standards (for residential mortgage or other consumer or commercial loans) and with standards already very tight, there was much tightening left, thus fewer lenders reported imposing tougher standards.
Beyond the weekly MBA report on application activity, the trade group reported on the performance of loans already outstanding, noting one of every seven loans is either in some stage of delinquency or foreclosure. And, the report showed in some categories delinquencies among prime mortgage borrowers exceed those of sub-prime.
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