Mortgage Applications Up, Refinancings Too

The Mortgage Bankers Association publishes a summary of mortgage applications every week, and as a barometer of home sales it adds some color to the official reports from the government. For last week, the MBA says that mortgage applications rose 2.2% on a seasonally adjusted basis from the week before. Unadjusted, the gain was 47.5%.

Ordinarily this might put some life back into the real estate market and give US homebuilders some reason to believe things were getting better. But the two homebuilders that have already reported earnings, KB Home (NYSE: KBH) and Lennar Corp. (NYSE: LEN), both showed just so-so results, most of which came from outside their building segments. The next builders to report, Ryland Group Inc. (NYSE: RYL) and D.R. Horton Inc. (NYSE: DHI) are both expected to post losses for the quarter.

But that’s last year’s news. What about this year? Based on the releases from KB Home and Lennar, neither company is expecting this to be a big year for home sales. Orders for new homes have declined, backlogs are falling, and the companies are showing profits based on lower SG&A expenses (KB Home) or financial segments (Lennar).

The MBA statistics show that mortgage applications for buyers have fallen for four of the past five weeks. Some of that is probably due to prospective buyers putting a hold on shopping for houses during the holidays. But high unemployment is probably the bigger culprit.

Another weight on home builders are the numbers of distressed or foreclosed homes on the market. People who fear losing their jobs are not likely candidates to seek a mortgage.

The level of refinancings rose to 72.1% last week, up from 71% in the previous week. Mortgage rates for 30-year fixed loans fell to 4.78% in the week, putting the 30-year fixed rate at 15 basis points below a seven-month high posted just two weeks ago.

Of the 28% of applications that are not refinancings, only 4.9% are applications for adjustable rate mortgages, which at one time accounted for 60%-70% of all mortgage originations.

Homebuilders face a tough market for at least the first half of 2011 — maybe longer if the unemployment situation does not improve — but refinancings will help keep mortgage loans flowing. This is a market that is essentially in neutral until US consumers feel more confident in their jobs and in the overall economy.

KB Home, Lennar, and D.R. Horton are all seeing small gains this morning, as is the SPDR S&P Homebuilders ETF (NYSE: XHB), which is up more than 1%, to $18.14, within a 52-week range of $13.59-$20.00.

Paul Ausick