FORTUNE – This summer, Americans’ interest in taking out a mortgage has skyrocketed, rising to its highest level in at least three years, according to a quarterly survey of lenders released by the Federal Reserve this week. Nearly three in five U.S. banks, or 57%, reported an increase in demand for home loans over the past three months, compared with 38% in the first quarter.
There are a few ways to interpret the renewed appetite: For one, it appears to be another sign that the housing market is on its way to a recovery (for real this time). While that might be partly true, it’s unlikely that stronger demand for home loans will translate to many more borrowers getting approved for mortgages. The situation is playing out like a cruel Black Friday sale — thousands wait hours for the department store to open, only to learn that they don’t qualify to enter.
And the doors will remain closed for many, at least for a while, because of the tighter lending standards put in place after the financial crisis. The percentage of applications for home loans that actually turn into mortgages has stayed at 70% for at least the past two years, according to the Mortgage Bankers Association.
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The surge in demand for mortgages comes at one of the cheapest times to buy. Although experts on Tuesday announced that home prices rose by their largest percentage in at least seven years during the second quarter, many homes for sale are still considered bargains. And while interest rates have edged up in recent weeks, rates for a 30-year fixed mortgage are still below 4% and at their lowest levels in at least 60 years. And if the Fed launches a third round of large-scale bond purchases, rates could fall even lower.
This isn’t to say the spike in demand for mortgages isn’t significant. If anything, it foreshadows how the housing recovery could play out over the next several years. Any pick-up in home sales will be driven largely by big investors armed with cash rather than your typical homebuyer financing his way to the American Dream, says Paul Diggle, property economist with Capital Economics.
A year ago it seem implausible that cash transactions could actually drive the housing recovery. Diggle says it has become more likely, as more institutional investors bet on a housing recovery by buying up thousands of distressed homes and renting them out. Admittedly, investors don’t typically take on the role of landlords, if only indirectly, managing large and often times dispersed portfolios of rental properties. It can be read as a sign of the times, as
The New York Times
notes, investors think income they receive in rent would deliver higher returns than Treasury securities or stock dividends.
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Last month, Blackstone Group LP
joined several hedge funds and private equity firms entering the home rental market. It has spent more than more than $300 million to purchase more than 2,000 foreclosed homes that will be available for rent. This follows investments from Beazer Homes USA
, which in May announced that it would acquire, refurbish and lease recently-constructed and previously owned single-family homes in select markets under Beazer Pre-Owned Rental Homes (founded by the company that includes an investor group led by affiliates of private equity firm Kohlberg Kravis Roberts
Indeed, regular buyers might feel a little gypped that big investors are largely taking advantage of deep discounts. This might certainly prompt a few buyers who actually qualify for a mortgage but are on the fence for whatever reason to finally pull the trigger. But years from now, when lending standards ease up and borrowers rebuild their credit profiles, the rest of us will certainly be the ones carrying the housing market to full recovery.
After all, many of us are eagerly waiting.