Home Purchase Applications At Lowest Level Since 2000

I keep hearing that the housing market is improving. In fact, some criticized Washington's extension and broadening of the home buyers' credit on the grounds that there is enough demand for buying houses already. So this news from the weekly home purchase applications survey conducted by the Mortgage Banker's Association (MBA) surprised me:

The seasonally adjusted Purchase Index is at its lowest level since December 2000.

It decreased a whopping 12% last week, compared to a week earlier. How can this be?

Well, it turns out that housing demand must not be quite as strong as many think. I requested historical data from the MBA, which they kindly provided, so long as I did not provide index values (data they charge money for), just trends. Here's what their data shows, since 2000:



And here's that magnified since the beginning of 2009:



I know it's a little hard to understand magnitudes with no vertical axis values, so let me provide a little guidance. As you can see a little more clearly in the latter chart, during most of September purchase levels were 20% higher than they were in February, when the stimulus was signed and the home buyer's credit first introduced. That's the distance from the first dotted line to the one above it. But since the week ending October 2nd, purchase applications have plummeted by 28%.

This is a little surprising, considering most people assumed that October marked a large number of purchases, as people rushed to buy homes in the fear that the credit might not be renewed. Now that it has been not only renewed, but broadened to include virtually all buyers, purchases might increase again.

What's most striking, however, is the fact that purchases are still so incredibly low compared to the rest of the decade -- even before the housing boom was in full swing. And this year's data mostly includes a huge government incentive, extremely low home prices and excess inventory. This likely goes to show that the economy and unemployment are having a more dramatic effect on consumers' desire and ability to buy a home than many thought, despite the attractive reasons to do so. I'll be curious to see whether the broadened home buyers' credit signed last week by President Obama changes the picture.