After a summer of ups and downs, mortgage application volumes (as reported by the Mortgage Bankers Association) stunned in early September with a 7.2 percent week-over-week drop, bringing the association's index to its lowest level in 14 years.
Reactions to the news on Wednesday were varied. While most commentators took it as a sour turn for a struggling market, MarketWatch's Ruth Mantell asserted "it may be too soon to dance on the housing market's grave," pointing out that even though MBA factored the Labor Day holiday into its weekly adjustments, the data could still be distorted.
Even in her argument, though, Mantell had to admit that 2014 "has seen a setback for the housing market's rebound, with home sales and building rates slower than many economists predicted."
While there are a number of factors that could have played a role in the latest plunge—tight lending conditions and interest rates being the two favorites among analysts—general unsteadiness in the current economic picture remains the underlying problem.
"We definitely feel that the overall health or confidence of the economy is sort of waning. There's definitely not momentum," said Brian Koss, EVP at Mortgage Network, a New England-based mortgage company.
For his part, Koss said his firm didn't feel the same drop in application volumes that was reported at the national level, but it also didn't see the post-Labor Day surge it usually experiences.
Part of the problem, he says, is the absence of buyers who had previously held off as the housing market looked uncertain, came back to help boost sales, and then disappeared again.
"Once that finite group of people have bought [a house] ... then where is the momentum going to come from?" he said. "That should come from people who are getting new jobs, getting promotions, getting bonuses, and feeling fully employed with their income on the rise." Which isn't happening—at least not as fast as anyone would like.
A Shrinking Housing Market
There's another major culprit behind the ongoing weakness in the mortgage sector, says David Zugheri, co-founder and EVP of Houston-based Envoy Mortgage: Housing just isn't what it used to be.
"Is the housing market going to be like it was in 2000? Probably not," Zugheri said. "We're really just shaping ourselves up to be a smaller housing market."
There's no small amount of evidence to support his claim. After blowing up in 2012 and 2013 on the back of an interest rate-fueled refinance boom, most of the country's biggest lenders have seen sluggish mortgage revenues so far in 2014, a sort of hangover resulting from a combination of fizzling refinance demand and weaker-than-hoped-for demand for home purchase loans.
Add to that the lack of sustained growth in new home sales, the number of underwater homeowners still unable to sell (8.7 million, as estimated by Zillow), the absence of young, first-time homebuyers, and the homogenization of the secondary market, and you come out with an industry undergoing a serious transition.
"If I told the story of a smaller housing market, which means a smaller mortgage market, the cards all fall in line," Zugheri said.
Claiming a Bigger Piece
While the pie itself might be shrinking, there's still a chance for more flexible firms to get a bigger piece.
Together, the 10 biggest mortgage lenders in this year's second quarter—including names like Wells Fargo, JPMorgan Chase, and Bank of America—claimed 46 percent of the market, according to Mortgage Daily. While still substantial, that figure is down significantly from only a few years ago.
And as large bank lenders adjust to capital requirements, there's a greater chance for other firms to capture a share of any business those bigger names are giving up.
"If you want to know how you're going to do more business, you're going to have to take market share from somebody else," said Stan Middleman, CEO at Freedom Mortgage. "So if in fact someone like Chase or Wells chose to have a smaller footprint in our marketplace, that would create large waves for the other originators in the space."