Despite the steady decline in mortgage rates, not many are applying for home loans. Why?
Experts at Freddie Mac, the government lending giant, say there are three main reasons for a slide in mortgage application despite rates at their lowest in 2014.
"You have to peel back the onion to understand the factors impacting mortgage originations so far this year...," the experts wrote in a blog post.
They explained that the "refinancing boom" is now over. There was a time when underwater home buyers were applying for refinancing mortgages to pay back a loan they already took on their house. As the economy and housing market rebound, the trend of refinancing mortgages faded.
In fact, the experts predict refinancing mortgage applications to go down another 50 percent for 2014 to 2015. It is already down 60 percent for 2013-2014.
Another major reason was more number of people paying through all-cash deals. According to a Goldman Sacchs survey, the amount of complete cash transactions more than doubled over the past seven years (since the housing crash) and reached a striking 60 percent in 2013. Apparently, cash transactions constituted 30 percent of the total home sales before the housing bubble burst.
Though all-cash home sales declined in the second quarter due to limited supply of luxury properties, the rate is still high when compared to the pre-crash period.
Plus, the decline of existing home sales, the cold winter and slow economic growth in the first six months contributed to the mortgage application lackluster.
But the experts say that mortgage applications will pick up, especially new purchase applications are bound to see some growth in the coming few months. Also, the U.S. Federal Reserve doesn't plan on raising rates any sooner so this is the right time to strike.
Fed chair Janet Yellen said at the recent annual economic symposium in Jackson Hole, Wyo., that a spike in short-term rates would entirely depend on the labor market and the Freddie Mac experts agree.
The experts say that a growth in mortgage applications would only be visible if the economy grew at a faster pace and more jobs were created.
"Overall, recent economic and employment improvements should help bolster household formations and contribute to gains in construction, home sales - and also mortgage originations," the experts said adding that refinance applications would be at its lowest since 2000, this year despite some growth.
