« back to Today's Commentary

Real Estate Hits The Ceiling
-- February 12, 2003

Signs are slowly emerging that the real estate boom is beginning to go bust. Despite falling interest rates, applications to refinance AND purchase homes are down. According to the Mortgage Bankers Association, its refinance activity index dropped 2.7% last week -- following a 4% drop the prior week. And its purchase index plunged even more, falling 11.4% for the week ending February 7.

Although the numbers remain high, the decline shows that a booming real estate sector won't be able to help the economy limp along for much longer. Refinancing has allowed homeowners to use their houses like an ATM -- which is why consumer credit has plunged in recent months. But it is just a temporary fix. Before long, consumers will have maxed out their equity lines of credit and will have to face those huge piles of debt once again.

And with so much uncertainty developing -- about war, the job market, the stock market, the overall economy -- it's no surprise that consumers are hesitant to make the big jump into purchasing new homes. Plus, they won't want to add on more debt, so, they'll pare down their other spending even more than they already have.

Trouble is, war is all but inevitable and the job market, the stock market, and the economy look as if they aren't going to improve much in the coming months.

related article: Fewer Homeowners Refinancing Mortgages