President Barack Obama mentioned the American housing market during his first State of the Union address of his second term, and he admitted that the current mortgage lending environment is not exactly helping economic recovery as much as desired. He mentioned the plight of first-time homeowners who are simply not able to qualify for a mortgage due to strict credit guidelines, and he also stated that he would like to see more refinance activity.
Without reading too much into President Obama's statements, it is easy see that a full housing recovery is still very much reliant on access to mortgage credit. According to some analysts, however, there are reasons to believe that mortgage lending operations may actually slow down in the months to come. Although mortgage interest rates are reasonably low at this time, they have been gradually ticking up in the last few weeks, and the rate of refinance applications has been dropping right along.
When the Federal Reserve Bank announced a third round of quantitative easing (QE3) last year, mortgage interest rates took an automatic dive as the Fed made good on its promise to purchase mortgage-backed securities. The Fed intends to keep up the QE3 status quo, but housing analysts are now paying attention to some worrisome trends.
Lower Mortgage Lending Activity Tied to Low Housing Inventories
Luxury home buyers and real estate investors have been crucial to the housing market recovery experienced from late 2011 until the end of 2012. That momentum seems to have subsided in January and February of 2013, and it shows a correlation with rising interest rates and low inventories. A recent report from the Mortgage Bankers Association (MBA) indicates that both purchase and refinance applications are taking a dive as rates go up ever so slightly.
There seems to be a synergy between mortgage lending and low inventories that goes beyond the hot spots of Las Vegas, Miami and Phoenix. Listings are not lasting very long on the market even in metropolitan areas like Dallas and Minneapolis; they are being snapped up quickly by real estate investors with cash at the ready. Homeowners are trapped between waiting for their properties to emerge from negative equity to holding off a little longer until prices are even higher. Either way, the available inventory shrinks, the days on the market get shorter and mortgage lenders see less action.
President Obama's vision of Americans being able to save by refinancing their mortgages is valid since there are many incentives and even White House initiatives for borrowers to do so at this time, but nothing is being done to address the obstacles to getting first-time home buyers to participate in the recovery.