Want the Real Outlook for Housing? Take a Look at Demand
Experts say supply isn't the problem in the housing market. It's the demand side of the equation that continues to falter.
There's little prospect of improvement anytime soon, given the steady rise in mortgage rates, problems for Fannie Mae and Freddie Mac, and banks' seeming reluctance to lend.
According to a survey of consumers by the University of Michigan, the percentage of people who think it is a good time to buy a home has been rising since mid-2007. But The Conference Board says the percentage of consumers planning to buy a home in the next six months has declined this year.
What’s the problem? At the heart of the problem is mortgage availability, or banks' reluctance to lend. Seventy-four percent of senior loan officers surveyed by the Fed in July said their banks had tightened lending standards for prime home mortgages, from 62.3 percent in the April survey.
The troubles of Fannie and Freddie have only made things worse for the mortgage outlook. They had to raise fees as they struggle to rebuild their capital base, making mortgages more expensive.
Rates are also on the rise, the result of risk aversion and balance-sheet repair. The rate on a 30-year fixed mortgage rose to 6.57 percent in the first week of August, from an average of 5.9 percent in the first quarter.
Analysts say it’s no surprise that the Fed's July survey showed weak demand for mortgages. And earlier this month, mortgage applications were down 37 percent from their year-ago levels, according to the Mortgage Bankers Association.
– By Ed Coury, Senior Editor and Midwest Bureau Chief for the Wall Street Journal Radio Network, Dow Jones & Co., and a reporter for WWJ Newsradio 950.
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