Mortgage Borrowers Are Finally Playing A Bigger Role In The Housing Recovery

The early leg of the housing recovery has been credited to declining shadow inventory and strong demand from institutional investors.

However, developing trends in mortgage applications suggest that the average joe homebuyer is playing a bigger role.

Mortgage applications in April were up 4.6% month-over-month, rising in seven of the past eight months. In fact, "over the past year applications for home purchase have risen by 11.5% to stand at a three-year high," writes Paul Diggle Capital Economics.

Though it isn't certain just how many of these are being approved, Diggle argues that it would be "reasonable to assume that more would-be borrowers are passing banks' credit checks.

The latest Fed Senior Loan Officer Survey (SLOS) showed that demand for mortgage lending is increasing as well.

All of this suggests that "mortgage-dependent homebuyers are starting to play a bigger role in the recovery," says Diggle.

David Rosenberg at Gluskin Sheff writes that the "debt deleveraging cycle is now an old paradigm." He also points out that declining mortgage rates are leaving people with more cash.

"Mortgage refinancing activity soared 8.3% last week, after a 2.8% bulge the week before, and the YoY trend here is an eye-popping 40%! The average loan size is now $227,000, versus $216,000 a year ago."

But mortgage delinquencies driven by subprime and adjustable-rate borrowers are also on the rise. In Q1, mortgage delinquencies climbed to 7.25%, from 7.09% the previous quarter.

Diggle does however believe that the slowly improving labor market could see the delinquency rate start to ease soon.