Increased Mortgage Applications Even With Strict Guidelines

Article Written By: Cory Boatright

The housing market has witnessed a jump in mortgage applications since mortgage rates are at their lowest levels in decades, with individuals looking to take advantage of the lower prices. This news comes about in the face of lingering unemployment and stricter guidelines for home loans.

While at first glance this would appear to be really good news for struggling market, it is not quite what it fist seems to be since in spite of mortgage applications increasing, the number of mortgage applications for buyers seeking to buy a house is still very low. .

The rise has in fact occurred because house owners are applying for mortgages to refinance their homes to take advantage of the low rates, in fact some 80% of mortgage applications account for refinancing.

Mortgage applications for new purchases stay low for a number of reasons. Firstly, since the subprime loan crisis, lenders have come under much stricter guidelines when it comes to the approval of loans. This means that fewer people now qualify for a loan than before. In addition, high unemployment means that lesser individuals are in an economical position to go ahead with any large purchases and unless more jobs could be created these statistics might remain low. One more contributing issue is the effect that the first time home buyer tax credit had on the market because the tax credit encouraged buyers to bring forward their decision to purchase a home from later in the year. This apparently means that the people who might have been buying a home now have already done so. Decreasing home price is even one more contributing factor to the low number of mortgage applications for new home purchases, as potential buyers delay their decision to buy till the housing market improves.

It is not all bad news however. In fact the figures can be looked on quite positively. Even though few individuals are seeking to get into into the housing market, the people who are refinancing have the potential to kick start many areas of the commodity. After refinancing their homes, the people who have done so would find themselves with a sum of money which can not only be used to pay existing debts, but they will even have cash to spend.

This spending will increase the flow of capital within business and commerce. A rise in business and productivity will lead to generating additional jobs since employers require additional staff to keep up with the extra demand. This decrease in unemployment could have a snowball effect since more individuals will now have money to spend, leading to further increases in the amount of money that is available. If the economy improves in this way then it'd almost certainly result in improved home sales and the housing market will witness a recovery.

If this additional disposable cash in the hands of those who are refinancing their homes reaches the open market as is anticipated, then a weak housing market could inadvertently be the catalyst for a full economic recovery.

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This Article Has Been Published on Wed, 12 Jan 2011 and Read 88 Times

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