The Credit Bubble

Many economists think that the housing bubble is the result of easy money, which in turn is due to the low interest rates and lax lending standards. This article from Business Week shows that mortgage applications are trending downward, which may be a signal that housing demand is cooling.

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“Not convinced? The proof is in the paperwork. Applications for purchase mortgages in early November fell below their 2004 level for the first time in six months -- after a 5% drop from September to October, according to the Mortgage Bankers Assn. (MBA). By late December, applications had plunged to June, 2002 levels. The MBA expects mortgage originations to fall by 18.6% in 2006.

Even the industry's boosters are getting nervous. "There's no doubt that we're transitioning to a more challenging environment," says Richard H. Wohl, CEO at IndyMac Mortgage Bank in Pasadena, Calif. Lenders' earnings have already begun to fall. "Profitability in the industry is down, and over time that will take its toll," says Doug Duncan, chief economist at the MBA.”

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