Applying for Mortgages Is Like Applying to Colleges

Ambitious high school students routinely apply to 10 or more colleges these days, in part because applications are standardized so it’s not so much work to fire off lots of them. The higher rate of applications creates the false impression that colleges are more selective than they used to be because they have more applicants for the same old number of slots.

Why am I talking about college and false impressions? Because a similar phenomenon is distorting the housing numbers. Some optimistic analysts keep saying that the bottom of the housing market must be near because so many people are applying for mortgages. But it’s a false signal. People are filing multiple mortgage applications because they’re worried about getting turned down as credit standards tighten.

Case in point: Today, the Census Bureau reported that sales of new one-family homes in June were down 22% from a year earlier. Yet the Mortgage Bankers Assn. reported this week that its index of mortgage applications (for refinance as well as purchase) was up more than 15% in mid-July from a year earlier. Something, obviously, is screwy here.

The inimitable Barry Ritholz wrote about this yesterday on his blog, The Big Picture. Here’s a link to the item.

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