Lending markets are influenced by a number of factors, so it can be difficult to isolate the precise individual elements driving credit trends. But the stakes are high, so analysts and economists are quick to interpret financial data in hopes of predicting future market outcomes. Unfortunately, market volatility steps in to negate even the most informed forecasting, leaving observers to reconcile influences beyond their control.
The run-up to the general election, for example, recently played havoc with prognosticators, interfering with their ability to predict economic futures. And this is only one example of the way social culture and world events play roles in shaping financial outcomes. For proof of varied influences, one needs to look no further than the ever-changing mortgage market, which continues to surprise analysts with its irregular patterns.
Observers See Erratic Lending Markets
The mortgage lending industry has paved an irregular path since the recent recession. At times, takeaways are encouraging, prompting observers to point to healthy indications of sustained recovery. At other times during the past few years, however, shaky conditions have looked more like an industry still in search of stability.
The number of loans issued to assist home purchases was just over 40,000 during the month of February. The number represents a decline of 1.5 per cent and is sixteen per cent below activity logged during the same month in 2014. Lenders, government agencies and a host of interested observers are committed to explaining shifts, evaluating data to determine what is behind the drop and what it means for future economic conditions.
Seasonal Factors – Like other commercial markets, real estate operates on a regular seasonal cycle. As a result, some of the current mortgage lending patterns can be attributed to standard seasonal deviations. February is traditionally not the most popular month for buyers to close property transactions, so low numbers are consistent with historical patterns. When comparing same-month data, however, one must consider additional causes for the double-digit differences seen from one year to the next.
Consumer Confidence – Regardless of what the mortgage industry does to balance credit opportunities, a healthy financial industry needs a steady flow of borrowers to feed healthy returns. And people are more likely to spend money making major purchases when they have a positive general economic outlook. When consumer confidence is low, on the other hand, purse strings tighten and fewer families step-up to buy homes.
General Election – In addition to financial cycles that repeat on a regular basis, markets are subject to shifts based-on rare events. Elections and other important milestones, for instance, are capable of clouding economic conditions. The uncertainty sparked by this year’s general election may be accountable, in part, for slowed activity among potential home-buyers. Now that the polls are in, buyers may grow more confident wading-in to the lending market.
Credit Availability – Access to credit is another important driver in the lending industry. Restrictions making it harder for applicants to qualify for financing have left some observers calling for higher levels of credit availability. Small business loans, for example have lagged recently, so measures are being pursued to increase access to capital for small and medium-sized businesses. Business lending is of particular interest to economists, because borrowed money is typically used to buy assets, hire employees and expand operations – all desirable features for sustaining economic health.
Now that the election has passed, analysts hope to see an upward trajectory in lending markets. Home sales should rise as the winter slowdown yields to springtime buyers, and continued access to low rates should move more buyers to the closing table. And if the push for more businesses lending gains momentum, entrepreneurs and expanding numbers of commercial borrowers could also help buoy lending industry outcomes. Combined with reasonable levels of consumer confidence, the boost to lending could be sustained.