Mortgage Applications Decrease, Housing Starts Fall as Market Volatility Continues

By Kyle Chezum Updated on 3/16/2011

The Mortgage Bankers Association reported a slight drop in mortgage application numbers this week.  The association’s index fell by less than 1%.  This news, while not startling in its intensity, is nonetheless a sign of continued volatility in the marketplace, coming as it does on the heels of last week’s 15% application rate increase.

Mortgage applications decreasing again, even by such a small amount, rather than continuing to trend upward or merely slowing, shows that the housing sector is still experiencing inherent instability.  Mortgage interest rate levels, of course, greatly affect these dramatic shifts.  Recently, though, mortgage rate have remained fairly constant.  The sudden mortgage application decrease may have more to do with a lack of new homes in development.

According to data just released by the Commerce Department, housing starts fell 22.5% during the month of February.  Unlike the drop in mortgage applications, this news is, in fact, startling in its intensity.  A drop this large in such a short period of time hasn’t been seen since 1984.  Housing starts are currently about 21% lower than they were a year ago.  About 100,000 fewer homes went into development than leading economists predicted.  This is a major blow.

As with mortgage application rates, the drop in housing starts followed an approximate 15% increase during the previous month, showing an incredible amount of volatility in the marketplace.  Fewer new homes on the market may inspire more buyers to purchase some of the glut of existing homes, which may spur the housing sector recovery onward, but it’s too soon to tell whether this decrease is good news or bad news for the mortgage marketplace.