Rise in mortgage applications could point to continued recovery of Nevada housing market

Partly in response to increased interest rates, stabilized home prices and a rise of inventory, banks have received an increased influx of mortgage applications in the first few months of 2014.

A year ago, Nevada State Bank, with 50 branches across the state, employed nine loan officers and had little reason to boost the staff. Investors were paying cash for cheap homes. Now there are 20 loan officers, and the bank’s mortgage service team jumped from 11 to 32.

“It’s a blistering pace,” said Mike Gould, the bank’s senior vice president and director of mortgage. “Every single day the number of purchase applications is higher than we’ve seen at any time over the past two years. It’s the most applications we’ve ever taken. It’s a good indication of consumer confidence.”

That beefed up staffing is also a response to mortgage regulations that took effect earlier this year as part of the Dodd-Frank Act, which sought to reform regulations on financial institutions.

“We felt like the face-to-face consultation was the best way to explain the process,” Gould said, “and to make the transaction as easy as possible for our consumer. That goes a long way.”

A qualified mortgage provision aims to establish a “safe harbor” and restrict risky loans for those looking to purchase a home. For example, lenders must now verify a borrower’s employment and ensure a debt-to-income ratio of 43 percent.

The new regulations also mean buyers should be better educated when looking to purchase a home, Gould said.

“Most are not aware of the changes or of additional documentation and additional restrictions,” he said. “No one’s really been brought up to speed on exactly what that looks like.”

A year ago, refinance loans dominated the business, according to Jon Copeland, president of the Nevada Mortgage Bankers Association. This year, purchase transactions account for about 90 percent of the volume, he said, as refinance loans slip below 10 percent.

“First-time home buyers are concerned that they’re going to get priced out of the market again,” Copeland said. They think “they better buy now or they’re not going to be able to buy.”

That shift from fewer refinance applications to more purchase loan applications began in the second half of 2013, with a dramatic change at the start of this year.

“We still feel there’s an inventory shortage in Nevada, particularly in Las Vegas and Reno,” Gould said, “that will play a big role in how many of those applications will turn into closed transactions with new homeowners.”In a statement about hiring their new loan officers, Nevada State Bank said the “purchase market in Nevada is heating up.”But experts caution that the end result is yet unknown. Alex Barron, founder of the Housing Research Center, believes that the housing industry benefits with greater stability after investors start to drop out of the market.

He questioned whether increased loan applications from first-time home buyers and those looking to purchase a second home would lead to an actual rise in closing on those purchases.

“The presence of investors in the housing market is nothing but disruptive,” he said. “But I’m still waiting for the market to get back to some kind of a normality where people who want to live in a home buy a home for a shelter, not for investment purposes.”

Through 2014, Barron anticipates flat home sales because prices have increased over last year.

“We may not see signs of some type of a pickup (in sales) until the middle of this year,” he said.

As property values increased in the past 12 months and have since started to level off, investors found it more difficult to flip properties, and steered away from a challenging rental market.

“Investors a year ago were making a killing, and now they’re not making the killing, so that’s why they kind of went by the wayside,” Copeland said.

Gould expects he’ll continue to pad his mortgage service team.

At the same time, many people looking to purchase a home are finally starting to recover from financial hardships they endured several years ago.

Gould said because the financial regulations are so new, that it may be a few months before anyone can accurately gauge whether the Nevada housing market will rebound for home buyers.

“It’s still a little early to tell,” he said. “But it’s great for the economy in Las Vegas to have owner-occupied home buyers.”

That trickles down to other markets. A home buyer may also invest in interior renovations, pool maintenance or simply want to plant a few palm trees in her yard, Gould said.

“We have a positive outlook,” he said, “because it’s been a rough couple years.”

Contact reporter David Ferrara at dferrara@reviewjournal.com or 702-387-5290.