Mortgage applications continued to creep ever higher in January. If individual buyers keep on outnumbering investors, thereby dominating residential real estate sales, the U.S. stands an excellent chance of seeing a sustainable housing recovery.

Investors armed with cash have largely driven the recovery of the U.S. housing market to date, but a few signs suggest that trend may be easing up. For the past five months, applications for new mortgages have risen, suggesting that regular buyers may be starting to play a bigger role in the housing recovery.

A shift would be significant. The worry has been that once home prices rise to a point where it’s not as worthwhile for investors to buy, prices would most likely drop off sooner or later. If, however, individuals reign supreme in regards to home sales, it is an excellent sign that our housing market will strengthen to the point where we can legitimately lay claim to a long-lasting housing market recuperation.

Flipping Homes Image

In January, mortgage applications jump up 1.8 percent from the previous month – the highest level in 18 months. And during the last week of January, applications increased to the highest level since mid-2010.

Cash sales made primarily by investors have not slackened. Colony Capital, Blackstone (BX), Waypoint Real Estate Group LLC and other firms are scouring the U.S., from San Diego to Boston, hoping to discover bargains. Along the way, they’ve snatched up homes at incredibly cheap prices, ostensibly planning to rent them out and, at some point down the road when they deem the market to be right, flip them for a profit.

Refinances Still Outpacing New Mortgages

Roughly 20 percent of all existing homes are sold with cash, says Stephen Melman, with the National Association of Homebuilders. That share has stayed steady for the past year. cash transactions would most likely have to decrease to about 10 percent, Melman says, for there to be a shift in the market where individual buyers drive the recovery.

If interest rates remain nice and low, a great deal more borrowers will probably continue to refinance their homes rather than taking out new mortgages. In 2012, it is estimated that refinances made up 71 percent of all mortgage originations.

However, experts expect home loans to rise as refinances decline: New mortgages are expected to increase from an estimated $503 billion in 2012 to $592 billion in 2013 and $703 billion in 2014, according to the Mortgage Bankers Association.

Individual buyers will likely play a bigger role in the housing recovery, but the pace may feel like it’s happening in slow motion. At least it’s happening.

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This is filed under National Markets.

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