Mortgage Volume Down
The
housing market in general has been slowing quite a
bit lately in recent weeks, and now mortgage volume has
also hit a dead end.
According to an article entitled, “Mortgage volume
sinks to 4-year low,” by Associated Press Business
Writer J. W. Elphinstone, the mortgage industry is not
doing well at all.
The article was posted on Chron.com, August 2, 2006.
There are many reason as to why the mortgage industry
is failing as of lately, and it does not look like it
is going to get any better any time soon.
“Mortgage
application volume fell to its lowest level in more
than four years last week, the latest indication that
the once red-hot real estate market is cooling down. The
Mortgage Bankers Association reported Wednesday that its
market composite index, a gauge of mortgage
loan application volume, fell to 527.6 last week,
down 1.2 percent from the previous week's reading of 533.8.
This is the lowest index reading since May 2002.”
The real estate market has been on a five year “boom,”
so it is not like analysts did not know this slowdown
was going to occur. It was inevitable.
“The drop in loan volume comes as little surprise
to most analysts, according to Frank Nothaft, chief economist
at Freddie Mac. ‘On the whole, we expect lower origination
volume throughout the year. It may not fall week by week
and it may pick up a little bit at times, but we expect
a decline,’ he said.”
There is one main culprit to the slowing down of mortgages
being taken out and the real estate market in general.
“The main causes are higher mortgage
rates. Interest rates on fixed mortgages are at the
highest level in four years and rates on adjustable loans
are the highest in five years, Nothaft said.”
The Federal Reserve is the key body when it comes to interest
rates. They are in charge of regulating the rates.
“The Federal Reserve has increased key short-term
interest rates by a quarter percent 17 consecutive times
since June 2004. Higher interest rates make the cost of
borrowing more expensive. Although the central bank has
indicated a pause in interest rate hikes is near, the
effects of the increases will ripple through the economy
for at least the next year, Nothaft said, which will continue
to affect mortgage volume.”
Most analysts are expecting to see a decline in mortgage
volume continue not only throughout this year, but well
into 2007 as well. Other aspects of the market are not
doing well either.
“Already, the real estate market looks less like
the steam engine it was last year. Last week, the National
Association of Realtors reported that sales of previously
owned
homes and condominiums slipped 1.3 percent in June,
the eighth drop in the past 10 months. The Commerce Department
also said that new home sales fell by 3 percent in June,
the first decline since in February. In recent months,
major homebuilders like D.R. Horton Inc., Toll Brothers
Inc. and Pulte Homes Inc. have lowered their full-year
forecasts because of slowing sales, increased inventories
and high cancellation rates.”
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