A good leading indicator of future activity in the new and resale housing markets is the volume of mortgage applications. As the number of mortgage applications moves higher, It means that more people are negotiating a purchase of a home. Therefore, a higher number over time, might signal a bottom of the housing market.
Yesterday the weekly survey came out and the top line number showed growth in mortgage applications.
From the report:
“…..a measure of mortgage loan application volume, was 743.4, an increase of 2.5 percent on a seasonally adjusted basis from 725.6 one week earlier. On an unadjusted basis, the Index increased 2.7 percent compared with the previous week and was up 16.4 percent compared with the same week one year earlier”.
The still troubling number as I read it is that the increase is from refinance activity. The conventional index decreased as below:
“The Refinance Index increased 5.2 percent to 2866.0 from 2724.7 the previous week and the seasonally adjusted Purchase Index decreased 0.8 percent to 381.6 from 384.7 one week earlier. The Conventional Purchase Index decreased 2.1 percent while the Government Purchase Index (largely FHA) increased 3.5 percent”.
What this suggests to me for building products manufactuers and suppliers, is that we have not yet seen the bottom of the market.
While I think it is prudent to be realistic with respect to the downturn, The US building products market is still a massive market. Just one segment….the flooring market is a $25 billion at wholesale market. No matter how much it falls, it is still a very large market. What does the smart money do when everyone else is running for the exits? Ask Warren Buffett or any other contrarian investor. There will be winners!!! Winning companies will do what they always do…..focus on providing great value to their customers.
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