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Prime Mortgage Loan Demand Hits Highest in 14 Years

Wednesday, 8 Aug 2012 | 1:49 PM ET
Peter Gridley | Photographer's Choice | Getty Images

In a sign that the economy is building momentum on a sounder foundation than during the last housing boom, demand for prime mortgage loans is at its highest in 14 years, according to a Federal Reserve survey of bank senior loan officers.

The quarterly survey showed that 54 percent of loan officers see stronger demand for residential loans to buyers with the best credit, the highest percentage since 1998, points out Michael Darda, chief economist and market strategist for MKM Partners.

“We continue to believe the combination of a gradually healing financial system, a gradually healing labor market and a recovery in housing from a low base should drive the business cycle forward and may even lead to a pickup in activity before too long,” wrote Darda, in a report to clients Tuesday.

Easing lending standards is partly the cause for the pick-up. More importantly however, the survey shows that the economy’s biggest borrowers — who tend to lead the rest of the pack — have started to shore up their household finances after two devastating bear markets in the last 12 years.

The Fed survey also showed loosening standards for business loans, another important leading indicator for the economy, according to Darda.

This latest report could explain the much better-than-expected jobs report last Friday that has put a spark under the stock market, other economists said.

“The fact that households are increasing their demand for mortgages tells us two things: one, they view housing as a fundamentally cheap asset and two, their future job and income prospects are better than what traditional consumer confidence surveys suggest,” said Joe LaVorgna, chief U.S. economist at Deutsche Bank.

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