Mortgage Purchase Applications Data, 2016


Recently I saw on T.V., a friend of mine talk about mortgage application data being weak from last week and that housing demand wasn’t strong. His analysis wasn’t exactly wrong but woefully incomplete. Because it lacked a historical perspective of the numbers, the analysis gave a bearish impression of the market that simply isn’t true. What is true is that for all the mega bearish American talk, total home sales in 2016 are going to be at cycle highs due to higher mortgage demand.

You may remember that my core thesis going back to 2010 is that: we simply don’t have enough qualified home-buyers in this cycle to have a real recovery once you exclude the cash buyers.   If we look at the purchase application data today, we see that picture has started to change.

From Calculated Risk


In fact, we are at cycle highs in mortgage demand even with prices nominally back to the housing bubble peak. But let’s not get too excited about these numbers. We are only back to 1998 levels even with interest rates below 5% since early 2011 and rates below 4.125% since 2015.

In this cycle (2008-2019) we are hampered problems with affordability, demographics and the lack of “exotic” or fake loans that were in play during the bubble days.  But instead of recognizing these artificial boosters of the market, analysts are blaming tight lending and low inventory for the slow and steady  (instead of hyperbolic) rise in the housing market.

Mortgage purchase application data is frequently misinterpreted as well.  When looking at these numbers I recommend keeping these points in mind:

1st. Don’t put too much weight on the week to week numbers, especially around holidays.

2nd.  Only focus on the year over year numbers as they are the best way to track growth.

3rd.  (This is key) Only focus on the data from the 2nd week of January to the first week May.  After the first week of May volumes decline. I have seen too many people interpret the post spring and summer data as a housing is collapsing. Housing is seasonal so that is not the right way to look at the data.  In 2016 we are seeing 25% + year over year growth from Jan to May.

My peak number for existing home sales was at 5,430,000 because cash buyers are falling.  However, growth is growth and the housing market isn’t falling apart. So next time you see someone on T.V. put a lot weight on the week to week numbers, ignore it.  Follow the year over year numbers and only from the 2nd week of January to the first week of May.

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page