THE BOTTOM LINE
- By one key measure, it appears that U.S. homeowners have grown cautious about borrowing against the rising value of their homes.
- The Mortgage Bankers Association (MBA) tracks U.S. mortgage applications by purpose, showing whether prospective borrowers are looking to buy homes or refinance their existing mortgages. The MBA’s figures show that refinancing applications have been falling in recent years, even as home prices have risen substantially since the depths of the 2008 meltdown.
- Of course, there are several possible explanations for the fall in applications, including whether banks are actively discouraging refinancing by borrowers with all but the very best credit ratings, or whether interest rates offered by banks for these loans are rising above homeowners’ willingness to borrow.
- It’s striking that in the first two post-crisis periods when home prices were rising rapidly – in 2009 and 2012- 2013, applications spiked. But since the latter part of 2014, as home prices rose steadily, refinancing applications actually fell.
- The bottom line: the fall in refinancing while home equity rises may well represent household prudence, which bodes well for current household financial health and potential for future consumption. For stocks, this suggests that the U.S. consumer is well-positioned to support the current consumption-led growth spurt – and the corporate earnings it generates.
All data Source: Bloomberg, September 6, 2018, unless otherwise specified.
The S&P/Case-Shiller U.S. National Home Price Index tracks the value of single-family housing within the United States. The index is a composite of single-family home price indices for the nine U.S. Census divisions.
The Mortgage Bankers Association’s (MBA) Refinance Index covers all mortgage applications to refinance an existing mortgage. The Refinance Index includes conventional and government refinances, and is derived from the MBA Weekly Applications Survey, which covers about 75% of all mortgage activity.
Real Estate products, such as Real Estate Investment Trusts (REITs), are closely linked to the performance of the real estate markets. Real Estate products are subject to illiquidity, credit and interest rate risks, and risks associated with small and mid-cap investments.