U.S. Mortgage Activity Stays Stuck in Neutral

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U.S. mortgage activity remains stuck in neutral
Patrick T. Fallon/Bloomberg via Getty Images
By Diana Olick | @diana_olick

A slight drop in interest rates wasn't enough to move the needle on mortgage applications last week.

Total volume was down just 0.2 percent for the week ending Sept. 26 from the previous week on a seasonally adjusted basis, according to the Mortgage Bankers Association.

Meanwhile, mortgage refinance volume fell 0.3 percent week-to-week, while applications to purchase a home didn't move at all. Purchase applications are now 11 percent lower than they were one year ago and are running about 30 percent lower than historical norms.

"Although total purchase application volume was little changed, conventional purchase applications were at the highest level since July," said Michael Fratantoni, chief economist for the MBA. "On the other hand, government application volume fell for the week, with declines in purchase applications for FHA, VA, and Rural Housing Service loans."

While the average interest rate for government loans is slightly lower than those for conventional loans, FHA insurance premiums, as well as average credit scores, have increased and are sidelining some lower-income borrowers. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.33 percent from 4.39 percent for 80 percent loan-to-value ratio loans.

Anemic mortgage application volumes aren't surprising, given that signed contracts to buy existing homes fell in August and are down from a year ago, according to a report from the National Association of Realtors on Monday. Realtors blame an exodus of investors from the housing market for the shortfall in sales.

"With investors pulling back, the market is shifting more towards traditional and first-time buyers who rely on mortgages to purchase a home," wrote Lawrence Yun, chief economist for the Realtors in a release.

Mortgage rates moved slightly higher Tuesday and could be in for significant volatility at the end of this week, when the government releases its September employment report.

"That's neither good nor bad necessarily, but simply means the next pronounced move could be bigger than those seen over the last few weeks," wrote Matthew Graham of Mortgage News Daily.

Nevertheless, the potential volatility has some loan originators suggesting potential borrowers lock in rates for anything that is within 30 days of closing.

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U.S. Mortgage Activity Stays Stuck in Neutral
In 2013, the median lot size of a new sold single-family house was 8,596 square feet, or just under 0.2 acres. While that might not seem like a lot for you suburban homeowners, a regional breakdown shows that the small average size isn't due to urban inhabitants alone. The Northeast enjoys the largest average lot, at 13,052 square feet, while the less densely populated South and West lay claim to just 8,649 square feet and 6,796 square feet, respectively.
From a footprint of 1,650 square feet in 1978, the average American home has grown 50 percent, to 2,478 square feet. Yet tough times seem to be squeezing our expansionary attitude. Although new single-family homes sold in 2013 clocked in at a median 2,478 square feet, single-family homes completed in 2013 amounted to just 2,384 square feet. Homebuilder confidence has plummeted into pessimism in the last few months, hinting that the housing market's road to recovery might be rougher than expected.

While birth rates have held relatively steady for the past 40 years, everyone apparently needs more elbow room. The share of homes with four or more bedrooms has jumped from 27 percent in 1978 to 51 percent in 2013. And where would a bedroom be without a bathroom? While just 8 percent of 1978 homes had three or more baths, 37 percent of homes now fall in that category.

From 2008 to 2013, both the share of homes with four or more bedrooms and the share of homes with three or more bathrooms have jumped 10 percentage points, while median square footage is up 10.9 percent for the same period.

If there's one strong sign of new housing demand, it's home prices. After nose-diving during the Great Recession to a median sales price of just $216,700, home prices have been roaring back up. In 2013, the median sales price for a new single-family home was $268,900. But for those on the housing hunt, don't be discouraged. Home prices today still don't hold a candle to costs in 2006, according to the well-regarded Case-Shiller Home Price Index. In 2006, the index topped 200 before plummeting to less than 140, and current rates put the index just above 170.
It is America, after all. Our industrialized nation was built on the back of Henry Ford, and America is in no danger of breaking its automobile addiction. In 2013, a whopping 300,000 of the 429,000 new single-family homes sold included a two-car garage. And 98,000 new homes included a three-car garage -- the highest amount since 2007. Of all new homes built, only 10,000 failed to include a garage or carport.
American homebuyers are building bigger homes than ever before. But if there's one thing the recent recession has shown us, bigger isn't always better. Although 30 percent of Americans believe real estate is the best long-term investment, homeownership isn't for everyone. There are plenty of reasons to spend less or invest elsewhere -- and leave keeping up with the Joneses to Mr. and Mrs. Smith.
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