Yahoo Finance Mortgage Purchase Applications Rose Slightly
Mortgage Application Review for the Week Ending May 6
MBA Purchase Index rose slightly
Mortgage purchase applications rose 0.4% in the week ending May 6, 2016. We’re in the seasonally strong period for house purchases. Why are purchase applications flat given the drop in rates? It’s likely the low inventory. There are so few homes available for sale right now that it’s impacting mortgage applications.
In the above graph, you can see the spike in applications as buyers and originators tried to get in under the wire before the TILA-RESPA Integrated Disclosure rule took effect. Ever since rates bottomed out in 2013, the MBA (Mortgage Bankers Association) Purchase Index fell much less than the Refinance Index.
The steadiness is mainly because homebuyers tend to be less sensitive to the interest rate than those looking to refinance. The latter are driven 100% by the interest rate. Even if rates increase, people still move, get married, and move out.
Implications for homebuilders
The spring selling season is just beginning for the builders. For the most part, they’re optimistic about this year—provided that the economy holds up. The next big event for builders such as Lennar (LEN) will be the return of the first-time homebuyer. D.R. Horton (DHI) is rolling out a new brand called “Horton Express” to target the first-time homebuyer.
These buyers might be waking up after a long slumber. Household formation numbers have risen in the last few months. While many of the first-time homebuyers will undoubtedly be renters, the news is encouraging for the sector.
The luxury end of the sector is represented by Toll Brothers (TOL). It’s doing extremely well. However, it has exposure to hot urban markets. They performed well as a dollar play for foreign investors. PulteGroup (PHM) is joining D.R. Horton in targeting the first-time homebuyer.
A lack of skilled labor has been an issue for builders. This could be why we’re seeing housing starts creep up slowly. The fall in energy prices could draw many skilled construction workers from the energy patch back into home construction.
Investors can trade in the homebuilding sector through the SPDR S&P Homebuilder ETF (XHB).
Browse this series on Market Realist:
