A Crisis Of Confidence? Mortgage Applications Fall By 4.1% As Home Buyers Employ Caution

In a seasonally atypical turn of events, mortgage application volume fell for week ending 21 October by 4.1%.

By Annette Barlow November 14, 2016

Given the recent assertions that the US housing market is on the brink of yet another collapse, the revelation that mortgage applications have also fallen probably won’t come as welcome news.

In a seasonally atypical turn of events, mortgage application volume fell for week ending 21 October by 4.1% compared to the previous week, according to the Mortgage Bankers Association (MBA). CNBC wonders if a drop in consumer confidence is at the root of the falling numbers, and it’s hard to argue with that.

Related: How Mortgage Lenders Discriminate Against Their Most Reliable Borrowers

It’s taken the best part of a decade to recover from the previous mortgage crisis in 2008, and more than ever, consumers are safe-guarding their housing investments against serious market fluctuations. Which is not surprising, especially when you consider the precarious situations numerous mortgage finance institutions find themselves in. In a piece for the Washington Post, renowned financial officer Tom Forrester outlined the pitfalls of the federal bailout of Fannie Mae and Freddie Mac, the government-sponsored enterprises supporting a whopping 40% of US mortgages. In addition, Fannie Mae has also recently reported that consumer confidence is falling, as its Home Purchase Sentiment Index dipped 1.1 points to 81.7 in October, the third decrease in as many months.

In fact, US mortgage application volume fell 7% to its lowest level since early 2016. And while this is still a solid 9% above last year’s numbers, it’s a strong indication that potential buyers are treading very carefully. New mortgage measures introduced in October 2015 are playing a significant part in this care-taking, as lenders are now required to provide home buyers with two new types of form which detail explicitly the terms of their loan, including loan amount, interest rate and whether the amounts can change after closing. That might seem like pretty basic information, but it also means that consumers are able to shop around for mortgages in a much more systematic way, as they compare numbers directly. Similarly, this paperwork means that mortgage deals can no longer change close to closing, so things like inspections and repairs need to be taken care of far earlier in the mortgage application process than previously, inevitably delaying—and in many cases damaging—deals.

Related: Affordable Housing For Who? HDFC Helps Trust Fund Kids

These new measures also mean that while home buyers will save thousands at closing, their mortgage payments will be higher than in the old system, which may also be turning off potential mortgage seekers. Finally, the Federal Housing Administration (FHA) has set a minimum FICO score of 500 for homebuyers, and borrowers with a score less than 580 are required to put down a 10% deposit, rather than 3.5%. In other words, this new “Know Before You Owe” system is providing borrowers with more information than before—and as a result, borrowers are being more cautious.

But this doesn’t just affect mortgage applications: refinancing is also taking a knock, as applications to refinance existing home loans also fell 2% for the same week, in spite of lower mortgage rates. According to CNBC, mortgage bankers predict that refinance application volume will fall even further in 2017. In fact, MBA predicts that purchase applications will rise 11%, but refinance volume will drop by a huge 40%. This would reduce the total mortgage originations in the US by a significant 14% compared to 2016.

It would seem that no one is feeling particularly chipper about the immediate future of the housing market, and that can’t be improved by the uncertainty that faces the US now that Trump has managed to find his way into the White House. Consumers don’t like uncertainty, and these low numbers are no doubt going to stick around until the financial markets stabilize and Trump decides just exactly what his policies are going to be.

Annette Barlow



Annette is freelance editor, sub-editor, journalist and proofreader with a fierce love of all things feminist, food and music. She is a regular fixture on the arts, culture and feature desks at The Guardian, and her words have appeared on NME, Great British Chefs, The Fly, The Line of Best Fit and Australian Times.

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