December 12, 2007
People are still buying homes
Mike Plaiss e-mails...
John,
Thought you may enjoy these two graphs relating to the second of the “two good stories” you posted.
The first shows the Mortgage Bankers Association "Purchase Index" for the past 18 months. (MBA is the same group referenced in the article.) The second shows the same association's "Refinance Index". The source for all of the data is Bloomberg.
As you can see, people are still buying homes, and at a pace indistinguishable from the recent, pre-mortgage-crisis, past. In my mind the Refi index is just as interesting. The first thing one needs to get a refi done is a bank willing to do the refi. In other words, the bank is getting a second look at the collateral, and the creditworthiness of the borrower. If one is worried about the consumer, then the surge in refi activity is very good news. People pretty much refi for one reason only – to lower their monthly mortgage payment. A successful refinancing truly increases their wealth and helps maintain their buying power.
It should be noted that the index shows applications for a refi, not closed deals. But consumers are not stupid, and would likely not go through the trouble of completing an application unless they had good reason to think they would be successful.
What is happening in the mortgage industry is not a crisis but a necessary readjustment after 90% of brokers got into loans that they shouldn't have. The "crisis" is that they've finally realized that they can't continue on in the heedless manner of the past seven years.
Yes, there are a record number of foreclosures in process— just as there are record numbers of homeowners. As a percentage, foreclosures are not out of line.
And, BTW, I'm one of those watching housing prices fall with outright glee. We have been priced out of ever possibly owning a home because the fundamentals were so far out of whack; if they come into line (median house being priced somewhere close to 3 x median income, as has been true historically) then we've got a good shot. It was nice when I figured out that we weren't insane or had horrible lives compared to our age range because we didn't have a house and "they" did; it just turned out that many of "them" had decided to go with mortgages of six or more times their yearly income.
A lot of those will foreclose, but many will struggle on somehow.
At any rate, the bad news in the housing market is primarily around those who overextended themselves. Some people will get secondary fallout from being in neighborhoods with the overextended, but for the most part, if you managed your housing sensibly you will be perfectly fine.
Posted by: B. Durbin at December 13, 2007 06:15 PM
