What Rising Mortgage Applications Tell Us About the Real Estate Market

More people are applying for mortgages, which means more people are buying homes and more people are confident that the housing market is strong.

According to the Mortgage Bankers Association, more people are looking for real estate financing and homebuyers are driving the trend. According to the MBA, mortgage application activity rose 1.3% in the week ending January 30th, and on a year-over-year basis, demand for new mortgages has risen steadily.

A larger part of that growth is coming from home buyers, not just refinancing activity. This should come as no surprise since interest rates remain low, but mortgage rates hit their lowest point in 2013, and in that year a massive surge of refinancing activity kept mortgage bankers busy. At this point, the number of homeowners who can still refinance is much smaller than it was previously as a result.

In a separate report, we saw new home sales explode, rising 11.6% in December, just when people were expecting to see weakness in the real estate market. Many analysts are saying that the trend towards more renters in big cities has gone too far, as now the majority of people living in big cities are renters. But with mortgages remaining at their low point and with housing starts on the rise, many expect the shift from renting to homeownership to raise demand for real estate in 2015 and beyond.

Credit Availability

A big part of this story is the availability of credit. After the subprime crisis in 2007 and 2008, many banks simply refused to lend to anyone. After years of lending to too many people, the banks were beginning to lend to too few people. This just made housing prices fall further, as sellers were frustrated that they couldn’t offload property due to buyers being unable to qualify for the mortgages they needed to buy.

That has changed. The MBA noted that credit availability went up in January, which means that it is now easier for buyers to get mortgages than it was before. The MBA attributes the trend to a variety of factors, including new homebuying programs from Fannie Mae and Freddie Mac that allows well-qualified homebuyers the opportunity to buy property with just 3% down payments. That program has helped “to provide consumers with better access to mortgage credit,” according to MBA Chief Economist Mike Fratantoni.

So far, 40% of banks and mortgage providers are offering loans through this program, which Fratantoni says caused credit availability to rise by 3% on a month-over-month basis. After years of frustrating rejections, potential homebuyers are now hearing the word “yes” more than they are used to. This is surely to drive demand for property in the short term.

Playing the Trend

With demand for homes and demand for new construction particularly strong, real estate investors can profit by developing properties that cater to this growing market of buyers. With the flood of capital and the increase in credit, it is quickly becoming a seller’s market in many parts of the country.

If you are interested in playing the trend and selling to this growing pool of buyers, Socotra Capital can help. With years of experience funding dozens of properties of various sizes in California, we have the expertise you need to get new residential property projects off the ground.

Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.

Leave a Reply