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An analysis of the mortgage market looks at fixed-term mortgage interest rates, new home sales, existing market inventory, house prices, and types of mortgage financing activity. The amount of debt outstanding and the ratio of new home sales to existing home sales are also important indicators. These factors can indicate whether the market is buyer or seller biased and whether the market is expanding or contracting.
An analysis of the mortgage market is conducted by looking for changes in several key indicators. These indicators include fixed-term mortgage interest rates, new home sales, existing market inventory, house prices, and types of mortgage financing activity. More mortgages for new purchases than refinancing on existing loans may be indicative of a stronger market. Another common indicator used in a mortgage market analysis is the amount of debt outstanding.
Like other forms of market research, an analysis of the mortgage market relies on numerical data to build a picture of aggregate trends and occurrences. While a change in a key indicator may herald a period of decline or growth, it usually reflects a short-term market response to an external factor. For example, the number of refinancing mortgages may temporarily increase in response to a large reduction in interest rates. This change may not be the result of a weakening market, as it may also be related to investors’ wishes to free up cash flow in order to make further real estate purchases.
The amount of new home sales relative to existing home sales activity is another factor to look at in an analysis of the mortgage market. A higher number of new home sales may indicate an increase in construction activity due to an influx of new buyers. In other words, the growth and activity of the market is attributed to first-time home buyers, vacation or second home purchases. This may indicate an expansion as home buyers have adequate income to support multiple mortgages or home expenses and do not have to rely on liquidating current real estate assets.
An increase in existing home sales could be due to a high foreclosure rate or a need for homeowners to eliminate mortgage obligations. This can be seen in times of economic weakness, as the average earner loses disposable income due to job losses, loss of income, or high inflation rates. A disproportionate amount of existing home sales versus new inventory may also be due to a high amount of demand versus supply for new construction.
Market inventory levels can be used in an analysis of the mortgage market to determine if the market is buyer or seller biased. The presence of high quantities of aged inventory usually reflects a buyer-oriented market, where supply is greater than demand. This can occur due to miscalculations by on-demand homebuilders in a geographic location, a weak economy, or high amounts of sales activity. Similarly, a high amount of outstanding mortgage debt can indicate a sound buying business, the average homeowner’s inability to pay their monthly obligation, or a heavy dependence on bank financing to afford a home.
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