Economy Watch: Why the Real Estate Obsession?

The Big Picture answers the question:

Mortgage Apps drop 29% Y-Y

We were recently asked why we have become so "Real Estate obsessed."

That's the wrong question. Given how significant Housing has been to job creation and consumer spending, the right question is "Why aren't you more obsessed with Real Estate."

Let's look at the most recent mortgage data as an example: This morning, the Mortgage Bankers Association (MBA) released its Weekly Mortgage App Survey (week ending July 28) called the Market Composite Index. Its a measure of mortgage loan application volume.

The most recent data showed a sequential decrease of 1.2% (seasonally adjusteded) -- the lowest the index has been since May 2002. It was the 3rd straight week of slumping overall mortgage activity, despite interest rate declines over the same timeframe.

On an unadjusted basis, the Index decreased 29.0% compared with the same week one year earlier.

Hence, our obsession.

Mortgage apps are but one of many indicators of the ongoing housing market slowdown. New Home Sales were down 11% in the past year, while Existing Home Sales were down 8.9%. Both Housing starts (down 11%) and Home Builders' Sentiment Index (down over half -- off 41 points in the past year to 39) to levels also suggesting a dramatic cooling in Real Estate.

As the same blog pointed out last year, half of new American jobs created during the most recent wave of growth have been real estate related. Rising home values have fueled consumer confidence through the famous wealth effect, but if that fades, based purely on consumer emotion and perception, consumer spending could cool quite notably. Every American industry, and the world economy, will feel the effects.