When the Mortgage Bankers Association reported last week that applications to purchase homes had posted a fairly significant increase--11 percent--it was considered by many to be another hopeful sign that the housing market could be in the early stages of a comeback.
That's why the following data point in this week's MBA weekly application survey stings a little bit more than usual:
The seasonally adjusted Purchase Index decreased 11.3 percent to 264.1 from 297.7 one week earlier.
The purchase index is significant because so far the incredibly low mortgage rates that the Fed has engineered--which, by the way, have dropped to 4.70 percent--have primarily benefited the refinancing market. (Although the refinancing index declined in the latest survey as well.) While enabling homeowners to lower their monthly mortgage payments helps the overall economy, it doesn't do anything to reduce the mountain of unsold inventory that is putting continued downward pressure on home prices. To chip away at this glut of unsold homes, we need more sales. And last week's survey triggered optimism that the attractive financing rates and falling home prices were pushing more buyers off the sidelines.
We'll continue to follow this survey closely, but at this point it seems that that accelerating weakness in the labor market and continued uncertainty about the overall economy is overwhelming the incentives--cheap mortgage rates, lower prices, tax credits--to buy a home. And it’s going to be tough for the market to come back until the labor market turns around.