Economists' Outlook

Housing stats and analysis from NAR's research experts.

Mortgage Applications: Perception vs. Reality

Every four months the New York Federal Reserve Board (FRBNY)[1] conducts a survey of consumers to measure their perceptions and tastes about credit. The Survey of Consumer Expectations (SCE) covers a broad set of topics about mortgages including:

  • Whether the respondent had applied for a mortgage,
  • Whether their application had been rejected,
  • Whether they planned to apply in the future, and
  • If they were to apply, whether they expect their application to be rejected

In recent quarters, the results have cut an odd path. While the share of respondents who indicated that a mortgage application had been rejected fell from a peak of 24.5 percent in February of 2015 to 10.3 percent in June of 2016, the share that felt their application would be rejected rose to its highest level since the survey began at 39.9 percent. The share reporting a rejected application did rise modestly from the February to June of this year, but reached a level less than half of the peak from the February of 2015.

mortgage applications
Could consumers’ perception be that far off? Or could consumers be self-selecting where higher quality borrowers applied and received mortgages, while non-pristine consumers perceived tightening and applied at lower rates?
applied
Applications for credit by borrowers with credit scores below 680 and between 680 and 760 fell from October of 2015 through June of 2016, while applications from the highest quality borrowers climbed (above).

At the same time, borrowers with the highest credit scores indicated a greater likelihood of applying for a mortgage in June of 2016 compared to 12 months earlier (9.3 percent increase), while respondents with credit below 680 and between 680 and 760 were 14.8 percent and 26.5 percent less likely to apply over this period, respectively. Each sector rose from February of 2016 to June, but the increase was most pronounced in the over 760 sector, which grew roughly 23 percent compared to gains of just 2.6 percent and 2.7 percent for the other two sectors, respectively.

credit band
The SCE survey does not report rejection rates by credit score, so the driver of this pattern is not clear. However, respondents as a whole indicated a drop in plans to apply for a mortgage in June at 7.8 percent relative to 8.6 percent 12 months earlier. The June reading was up from February, but still off 8.8 percent from a year earlier when consumers rode a wave of enthusiasm garnered by the FHA’s 50 basis point premium.

likelihood
The Brexit-led decline in mortgage rates in June may have fueled renewed demand for mortgages, but it is not clear if this upward trajectory will hold in the face of non-pristine consumers’ perceptions about access to credit.


[1] Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY).

The SCE data are available without charge at http://www.newyorkfed.org/microeconomics/sce and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.

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