Even as the Macroeconomic Environment Improves, Mortgage Application Activity for Home Purchase Remains in Decline and Home Sales Have Generally Underperformed As Well.


The biggest economic news in the US over the past month was the final estimate of GDP growth for the first quarter of 2014, which had real GDP contracting by 2.9 percent, a much larger decline than the 1.0 percent rate of contraction previously estimated. This was driven mainly by lower than expected consumer spending and a larger trade deficit. Similar to earlier estimates, residential investment was a drag to real GDP growth for two straight quarters. The last time residential investment contracted was in 2010 and the last time we saw two quarters of negative growth was in 2009.

Even as the macroeconomic environment improves, mortgage application activity for home purchase remains in decline and home sales have generally underperformed as well. We expect purchase originations to decrease 10.6 percent in 2014 relative to


The divergence in the mix of mortgage applications for home purchase, based on loan amounts continues, but every loan size category except one is showing a decline. This trend has evolved and most recently, even the larger loans are starting to show declines over the year. Only purchase applications between $417,000 and $625,000 is showing year over year growth. Overall purchase applications were down almost 16 percent in June from a year earlier, and the economy has now seen nine consecutive months of weakness on a year over year basis.

Refinance originations, despite a very brief revival in the third quarter of 2014 as rates ticked down, are still expected to fall 60.9 percent to $431 billion in 2014 relative to 2013’s level of $1.1 trillion.

Refinance originations will decrease slightly in 2015 as rates continue to increase and fewer borrowers remain “in the money” and have incentive to refinance. Even with lower than expected mortgage rates thus far in 2014, there has not been much refinance activity.

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Law Offices of Barry S Fagan on:

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