ARM Applications Falling

May 15, 2007

Considering all the problems related to existing subprime adjustable-rate mortgages – e.g., home foreclosures, lender bankruptcies – it’s no wonder that the proportion of applications for new ARM loans is dropping. It’s now down to 20.2 percent of all mortgage applications, according to a report from John Burns Real Estate Consulting.

Burns noted that in March the yield curve reversed its inverted status for the first time since July 2006. Interest rates responded by decreasing across the board. Subprime worries and a lackluster start to the spring home selling season are reflected in a drop in homebuilding activity. However, many analysts are predicting a substantial rise in home sales in coming months, due in large part to continuing low mortgage interest rates, improving weather, and the seasonal build-up in consumer demand.

"The housing market was largely responsible for pulling the economy through the recession in 2001 and back to a vigorous pace of growth," it was stated in Freddie Mac’s April Economic Outlook report. "It remains to be seen whether the economy will return the favor, with overall GDP growth helping housing out of its downturn. The next month or so will be a critical period, as home sales provide a key test of housing demand."

Spring and early summer is a popular time to shop for home, the report noted. Better weather makes house hunting more pleasant, and a purchase at that point allows families to settle in before school starts in the fall. "With mortgage rates on 30-year fixed-rate loans steady at just above 6 percent and job growth more solidly on track, conditions are ripe for a firming in housing demand. Of course, this is only part of the equation, and housing supply presents several challenges to the recovery," the report said.

Posted in All Things San Diego, Lending, Real Estate, Things of Interest