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If You Want to Buy a Home This Year, Here's Some Really Bad News

The housing recovery is buckling under the weight of higher mortgage rates and bad weather. According to a report released on Wednesday, the market for purchase-money mortgages is at the lowest level in nearly two decades.

To give you an appreciation for the extent of deterioration, check out the following chart. This is an index compiled by the Mortgage Bankers Association that tracks purchase-money home loan volumes throughout the banking industry.

As you can see, the news isn't good.

According to the MBA's latest estimate, the volume of mortgages for home purchases as opposed to refinancing is at the lowest point since August1995 -- the same year Coolio and TLC topped the music charts with the timeless ballads Gangsta's Paradise and Waterfalls.

To make matters worse, this is happening just as homebuyers begin gearing up for the spring selling season. "Purchase applications were little changed on an unadjusted basis last week, but this is the time of a year we would expect a significant pickup in purchase activity, and we are not yet seeing it," said Mike Fratantoni, the association's chief economist.

The news comes on the heels of at least three other similarly downbeat reports. Two weeks ago, the Commerce Department reported housing starts dropped by 16% in January compared to December. Two days later, the National Association of Realtors released data showing that existing home sales fell in January to the lowest level in 18 months. And last week, a widely tracked measure of home prices showed that they receded on a sequential basis in the final month of 2013.

The one exception has been new home sales. On Wednesday, the government said that sales of new single-family homes in January grew at the fastest pace in more than five years. According to the Commerce Department, the figure jumped by an impressive 9.6%, to a seasonally adjusted rate of 468,000. This is its highest level since July of 2008.

Suffice it to say, any sustained faltering in the housing market would be highly detrimental to both the economy and to stock prices. While these results could be the result of unseasonably severe weather, as many suspect, it's nevertheless something that investors should watch carefully over the coming months.

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  • Report this Comment On March 02, 2014, at 1:36 PM, NunoMats wrote:

    If the market has softened somewhat, this is not the time to sell, but it may be a good time to buy if the market soon recovers, and prices begin to again rise.

  • Report this Comment On March 03, 2014, at 2:24 AM, JoeLemon wrote:

    Every reasonably intelligent person knew the housing would start to go down as rates went up. The price increase was from the feds keeping the rates low. There won't be a real increase until salaries start to go up.

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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