Homes Give Solid Boost to Economy
A record number of people applied last week for loans to purchase homes, providing further evidence that the nation’s housing market remains relatively robust despite the sluggish economy, an industry group said Thursday.
Taking advantage of unseasonably warm weather in some parts of the country, as well as historically low interest rates, consumers fueled a 16.5% increase in home loan applications over the previous week, the Mortgage Bankers Assn. of America said.
The group’s index measuring home loan purchasing hit an all-time high for the week ended Dec. 21, a period when people traditionally are occupied with holiday festivities rather than house hunting.
The surge in mortgage applications also is good news for the economy because it indicates an uptick in consumer confidence, experts said.
Prospective buyers are less likely to assume a big financial obligation when they are concerned about their jobs.
“It’s an indication that consumers are looking toward the future and saying that the economy is turning around,” said Amy Cutts, principal economist at Freddie Mac, a major supplier of funds for mortgages. “They’re taking a bold move and buying homes.”
The high interest in home buying, during what is usually the slowest of real estate seasons, was stronger than analysts had expected.
“This report shows that the economy is not as bad as some have feared, even though it’s in a recession,” said Douglas Duncan, chief economist for the Washington-based mortgage bankers group.
Indeed, sales of new housing remain on track for a record year nationwide, and sales of previously owned homes are likely to reach their second-highest ever.
Still, analysts cautioned that the latest report on the rush for home loans would have been tempered if wintry weather had coated much of the country.
Recent increases in mortgage rates also may have contributed to the surge, as prospective buyers attempted to lock up home loans before the rates climb higher. Fixed-rate mortgages currently bear rates averaging 7.1%, about the same as a year ago, according to Freddie Mac. In early November, however, the rate averaged only 6.45%.
Because more buyers are in the market now, demand could taper off early next year, experts said.
In addition, increases in actual purchasing activity in the winter are magnified when the number is seasonably adjusted, Duncan said.
Home sales are typically slow in the winter compared with the rest of the year, so the actual number of applications is typically multiplied by a relatively large adjustment number to correct for seasonal slowness.
Still, the industry can expect a strong year in 2002, economists said.
“It won’t be a locomotive of growth next year but won’t be a drag on the economy, either,” said David Berson, chief economist at Fannie Mae, the nation’s largest provider of home mortgage funds.
In Southern California, where home prices have been rising at a faster rate than in the rest of the country, lenders said they have handled a steady flow of applications for new mortgages.
“We’re certainly seeing strong demand but not record activity,” said Rick Hartnack, vice chairman of Union Bank of California.
Several area lenders also noted that, in a departure from the national trend, people seeking to refinance their homes continue to account for the bulk of mortgage applications in Southern California.
Nationwide, the number of people refinancing their home with a lower-rate mortgage dropped 20% to the lowest level since July. That more than offset applications for home purchase loans, leading to a 2.5% decrease in all home loan applications for the week, the mortgage bankers said.
By refinancing at lower interest rates, homeowners have gained additional income, which can help boost the economy.
The survey, conducted by the mortgage bankers group since 1990, covers about 40% of loan applications at mortgage bankers, commercial banks and thrifts nationwide.
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Reuters was used in compiling this report.
