Uh oh. The industry's worst fears might be coming true. Regardless of record levels of affordability (reset home prices and mortgage rates below 5.00%), purchase demand continues to decline after the expiration of the homebuyer tax credit.
THIS HAS LED THE INDUSTRY TO COLLECTIVELY ASK: WHERE WILL NEW BUSINESS BE GENERATED IF HOMEBUYER DEMAND WAS EXHAUSTED BY THE EXPIRATION OF TWO TAX CREDITS?
If this develops into a trend I fear broader economic and financial market consequences could play out. The failure of housing to maintain tax credit momentum would call a great deal of attention to the fact that 6.7 million Americans have been unemployed for longer than 27 weeks. It would remind market participants that the broadest measure of unemployment, which includes discouraged workers and those who are underemployed, rose to 17.1% in April.
This is not a problem the Federal Reserve can fix by purchasing more "rate sheet influential" mortgage-backed securities. This is a structural issue for housing...This is an "I CAN'T QUALIFY" to buy a home problem.
Is this a sign that we should all wave the white flag and find another job? Did the MBA miss more apps than usual this week? You tell me...has new purchase business gone cold?
I am not really sure what else to say here...this is deflating data and hopefully not indicative of things to come this summer. There is always the chance that refinance activity picks up steam as rates move closer to the lows of 2009, but you can bet profit margins will be tight on those loans as everyone left originating is competing for the same loans and willing to earn $1 instead of $0. Plus we can't overlook SHADOW BUYERS who are waiting around for home prices to fall a bit more. FANNIE MAE WARNED US THIS WOULD HAPPEN. Maybe this is just a tax credit hangover?
Tax credit loans have until June 30 to close. Originators who are still busy working those deals should not be placated by the government induced uptick in activity. Keep pushing whatever marketing you utilize (seller concessions) while you work to close those deals (a feat in itself)...the industry looks like it is about to contract a little more, competition for business will be fierce.
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