Summer is in full swing so I’ve got my binoculars out. The season is a great time to go hunting for elusive and not so elusive creatures.
Where to start? I could go to Oregon and hunt for Bigfoot, the semi mythical hairy fellow whose existence is claimed by sighters, and believers who point to disputable evidence and blurry photos.
Or I could stay home, and keep my eyes peeled for the “sideline buyers” who, according to many realtors and financial media, are ready to pounce on for sale inventory now that interest rates have spiked.
But chances of a Bigfoot sighting might be just as good as finding any meaningful number of sideline buyers, even here in Orange County, California. The theory is that buyers who’d been hovering in the shadows would leap forward once interest rates spiked. (In a recent interview on Bloomberg in June, I explained why the sideline buyer will turn out to be as mythical as our big footed friend. You can listen here: (http://media.bloomberg.com/bb/avfile/Economics/On_Economy/vBXKL7qIodo4.mp3)
Lets take a look at the evidence and facts on the ground.
Mortgage purchase applications were rising this year at a decent pace. Rates were low, existing sales and new home sales were moving forward. Since May 1st, 2013 we have seen a spike on the 10 year note from a range of 1.60%-2.74% and on the mortgage rate side of the equation some products have had a 1.5% move from there.
The scene was set. The terrain was clear. The elusive side line buyer ought to have been spotted in all his rumored glory , ought he not? After all, proponents gave these reasons for expecting his appearance:
- Interest rates are still low historically
- Affordability is still high
- Jobs are growing
- In recent months we have seen some more inventory come to market
- Spike in the 10 year note % wise was one of the biggest on record
So, this was a perfect setup for the mythical sideline buyer to rush to get their purchase applications going.
Well, the reality was that, much like Bigfoot, it is a great story, and much as you might want to believe it, the truth doesn't support the hope.
There has been no rush to the market on purchase applications.
In fact, mortgage applications have not even held their ground.
Mortgage Purchase application have been declining and at a rate that, if this trend continues, you could see a negative figure year over year.
In order to give the market a bit more time to change course, I waited until July 17, 2013 to see if the latest application report was affected by slightly lower rates this week. Was it? Not much. There was less than a 1% increase week to week from Mortgage Banker Association.
How can this be? Why are sideline buyers failing to materialize? Because in the real world where people live their lives, normal Americans aren't charting out or following Mortgage Back Securities purchases, they aren't following the rise of the 10 year note nor looking to see if there is a .50% move up in rates to see if they will buy a home. There is a natural flow of buyers in the market place, and those buyers are not jumpstarted by the market forces many would like to believe jump start them. Mr and Mrs Joe Family don't usually make a quick decision to buy a home because of fluctuations in the market place. So if you continue to have your binoculars trained on the sidelines for your buyers, may I suggest you take a trip to Oregon to hunt the big fellows up there. Your hunt may have better fortune.
Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988.