In looking at any product or service you will often hear people mention ‘supply and demand’, it is one of the foundations of Microeconomics.
Generally if supply increases prices drop, if it decreases prices rise. By how much is a question of how elastic the demand is versus supply.
We know from our day to day experience that there is still a high level of demand for mortgage finance, charting our figures back to 2005 has shown us that if we take out ‘noise’ of m/o/m figures that demand is still at relatively high levels.
However, we also know, from our daily interactions with banks that criteria is getting harder, conditions more restrictive, underwriting is more forensic, the supply of mortgages is decreasing rapidly.
Using a simple chart you would get something along the lines the one below, the blue supply and demand lines show the situation at a certain point in time, we’ll say that is a year ago, the green line of supply shows the current situation – it has moved to the left because of the decrease.