Thursday, 22 July 2010

US mortgage applications rise, chance of housing slump ending

Some relatively good news for the US housing market on Wednesday. From Reuters:

U.S. mortgage applications jumped last week as demand for loans to purchase homes rose for the first time in five weeks, the Mortgage Bankers Association said on Wednesday.

In addition, demand for home refinancing loans hit the highest level in 14 months as interest rates reached their lowest in at least 20 years, the industry group said...

The Mortgage Bankers Associations said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, increased 7.6 percent for the week ended July 16.

Indeed, among global housing markets, the US housing market is among those with the best chance to end its slump, according to a paper by Agustín S. Bénétrix, Barry Eichengreen and Kevin H. O’Rourke.

The world's current economic problems started when housing bubbles burst in several advanced economies. Economic recovery without housing market recovery is unlikely to be sustained. This column presents new research on the probability of housing slumps ending. There is at least a one-in-eight chance of housing slumps in the three big economies (US, Japan and Germany) ending imminently, but there is nothing approaching the same probability elsewhere. If things turn out as projected here, we may be about to have a test of the locomotive theory – whether the big economies can pull along their smaller brethren – both for housing markets and generally.

Of course, the one-in-eight chance means that an imminent end to the housing slump remains a low-probability event, which is possibly why Fed chairman Ben Bernanke was unwilling to raise hopes too much for the economy in his testimony to Congress on Wednesday. From The New York Times:

The chairman, Ben S. Bernanke, said Wednesday that the recovery was continuing at a modest pace, though with a “somewhat weaker outlook”...

In presenting the Fed’s semiannual monetary policy report to Congress, Mr. Bernanke said that it would take “a significant amount of time” to restore the 8.5 million jobs lost in the United States in 2008 and 2009, and that “the economic outlook remains unusually uncertain.”

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