Housing Recovery to Take Decades Despite Recent “Good News”

by Justin Weinger on July 20, 2011

Tea Party

Funny mortgage pic from Flickr

First, the good news: mortgage applications increased by the largest amount in four months.

Next, the bad news: don’t take this as a sign that the housing market will rebound any time soon.

According to an article published on Yahoo! Finance, mortgage applications surged by 15.5% for the week ending July 15.  Unfortunately, this surge was fueled by refinancing, not home buying:

The MBA’s seasonally adjusted index of refinancing applications soared 23.1 percent, but the gauge of loan requests for home purchases dipped 0.1 percent.

The refinance share of mortgage activity rose to 70.1 percent of total applications from 65.6 percent the week before.

In order to get the housing market turned around, there will need to be a surge in applications for home purchases, not refinancing.  The only way the decline in housing prices will end is by buyers – in particular, first time homebuyers – soak up all of the inventory of unsold, foreclosed, and vacant homes on the market.

With the economic recovery tenuous at best, and unemployment continuing to be a huge drag on consumer spending (which it should be – I would love for the days of easy credit and loose spending to be over), it’s not as if there are a lot of people ready and willing to make the single biggest purchase of their lives.

Don’t be surprised for the housing recovery to take decades.

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