Mortgage Applications - Up Despite Strict Guidelines
Print View - Published: Sun, 16 Jan 2011 at 10:50 PM
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The housing market has witnessed a jump in mortgage applications since mortgage rates are at their lowest levels in decades, with people seeking to take advantage of the lower prices. This news comes about in the face of lingering unemployment and stricter guidelines for home loans.
Although at first glance this may appear to be really good news for struggling market, it isn't quite what it fist appears to be since in spite of mortgage applications rising, the number of mortgage applications for buyers looking to buy a home is very low even now. .
The increase has actually occurred because house owners are applying for mortgages to refinance their homes to take advantage of the low rates, in fact some 80% of mortgage applications account for refinancing.
Mortgage applications for new purchases stay low for a number of reasons. Firstly, since the subprime loan crisis, lenders have come under much stricter guidelines when it involves the approval of loans. This means that lesser individuals currently qualify for a loan than before. Additionally, high unemployment means that lesser individuals are in a financial position to go ahead with any huge purchases and unless extra jobs can be created these figures might remain low. One more contributing issue is the effect that the first time home buyer tax credit had on the market since the tax credit encouraged buyers to bring forward their decision to purchase a house from later in the year. This obviously means that the people who may have been purchasing a home now have already done so. Reducing home price is even another contributing factor to the low number of mortgage applications for new home purchases, as prospective buyers delay their decision to buy till the housing market improves.
It is not all bad news however. The figures could, in fact, be looked on rather positively. Even though few people are looking to enter into the housing market, the people who are refinancing have the potential to kick start several areas of the commodity. After refinancing their homes, those who have done so would find themselves with a sum of money which could not only be used to pay existing debts, but they will also have cash to spend.
This spending will increase the flow of capital within business and commerce. A rise in business and productivity will lead to generating additional jobs since employers need additional staff to keep up with the extra demand. This decrease in unemployment would have a snowball effect as more individuals will now have cash to spend, leading to further increases in the amount of available money. If the economy improves in this way then it would almost certainly result in improved home sales and the housing market will see a recovery.
If this extra disposable cash in the hands of the people who are refinancing their houses reaches the open market as is anticipated, then a poor housing market could inadvertently be the catalyst for a total economic recovery.
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