It's not entirely clear if it's a can or the proverbial bucket. All we know is that mortgage applications have been kicking it. There's no great way to make the news interesting now that loan volume has done what anyone would have expected it to do, given the the rapid rise in rates over the past 6 weeks. Up until that point, there had been a noticeable uptick in refinance applications. That uptick has now been fully erased, although this week didn't decline nearly as much as the past several. In the bigger picture, that uptick wasn't anything special considering the starting point was as low as it's been in decades. To whatever extent refi apps have been historically muted, purchase applications have been reliably boring. Little changes on that front from week to week. The bigger picture is more interesting here, perhaps, as it shows the rapid shift from a longstanding trend of steady improvement to the new reality of exceptionally light purchase activity. Other highlights include: Refis accounted for 39.9% of the total, same as last week FHA accounted for 16.0%, up from 15.5% VA accounted for 13.3%, up from 12.5% Survey rates were up to 6.86 from 6.81 (30yr fixed) origination/points decreased to 0.6 from 0.68 FHA rates fell to 6.69 from 6.75 Jumbo rates rose to 7.00% from 6.98%
In today's weekly mortgage application survey from the MBA, the average 30yr fixed mortgage rate only rose from 6.73 to 6.81%. Meanwhile, daily average rates are already back over 7%. Any way you slice it, rates have been rising quickly and the fallout is completely unsurprising when it comes to refinance applications. For context, here's how the past year fits in the bigger picture: Refinance applications wax and wane with interest rates. The present environment is particularly restrained by the fact that so many people refinanced to such low rates in 2020-2022. At the moment, the only group of borrowers with a rate-based refinance incentive are those who purchased or refinanced in late 2023 when rates were near 8%. Purchase applications are much more even-keeled, but also not loving the current rate/affordability environment. Other highlights from this week's survey: Refinances accounted for 39.9% of total applications, down from 43.1% last week Average loan size fell below $300k FHA loans were 15.5% of total vs 16.4% last week VA loans were 12.5% of total vs 14.6% last week Conventional rates were 6.81 up from 6.73 vs jumbo rates at 6.98 (up from 6.77... a much bigger jump) ARM rates fell from 6.20 to 6.05, but upfront costs increased from 0.59 to 0.84.
Housing was chugging right along in early 2020, then covid happened. Housing experienced lots of unexpected volatility with the most important development being a huge increase in demand and prices... at first. Once rates began skyrocketing (relatively) and the frenzy began to subside, home sales numbers tanked to the weakest levels since the Great Financial Crisis by the end of 2022. They've been drifting and bouncing around near those same levels ever since. Bigger picture for context: In other words, this data series isn't worth too much discussion until it exits this holding pattern. For those determined to pick out potentially interesting anecdotes, feel free to sort through the following: Prices rose 3.0% year over year. It's the 15th straight month of increases Inventory has been growing faster than sales have been falling First time buyers accounted for 26% of total, matching the all-time low, but not a crazy drop from 2023's average of 32% All cash sales accounted for 30%, up from 26% last month.
The Mortgage Bankers Association (MBA) keeps track of applications for purchase and refi mortgages every week. Purchase apps are slower moving, less responsive to rates, and generally bouncing along the lowest levels in more than 20 years since the end of 2023. As such, we'll forget about them and move on to refi applications which have been far more interesting. This week's index fell to 672.6 from 734.6 last week. That's a big drop and it follows several other big drops, largely undoing the surge seen after the recent rate rally. But everything is relative. The chart above leaves us with the impression of a big crash following a big surge. If either move looks big, it's only because the baseline of the past 2 years has been the lowest, flattest pace seen in refi apps since 1999-2000. In the bigger picture, it was a barely noticeable uptick that has fallen back to the muted trend. The small uptick was unsurprising given that a vast majority of loans still had rates substantially lower than the lowest lows of the past few months. The correction back to lower levels is unsurprising given that rates have quickly surged back to the late July highs. As such, don't be surprised to see another reasonably big downtick next week. [thirtyyearmortgagerates]
While this technically signals some cooling in new construction potential, it wasn't much more of a drop than investors expected. Moreover, there has been a gradual cooling trend intact for more than 2 years. That's not as ominous as it sounds considering construction activity is still higher than it was in mid-2019. Housing starts, which measure groundbreakings for new home construction, actually came in just slightly higher than forecasts, barely declining month-over-month. Here too, there is a general cooling trend over the past few years, but a flatter trend over the past few months. Housing completions are a different story. They never experienced the same correction as starts and permits. They may have dropped from last month's high (highest level since 2007), but completions have been in a decisive uptrend since the middle of 2023 and a broad uptrend since 2011. Here's the bigger-picture context for construction:
Interest rates continued their slow decline last week while application volume is inching up almost as slowly. The Mortgage Bankers Association (MBA) reports a 1.6 percent increase in its seasonally adjusted Market Composite Index , a measure of mortgage loan application volume. On an unadjusted basis, the Index gained 0.2 percent over the prior week. Applications for home purchase financing took the lead, rising 3.0 percent on a seasonally adjusted basis and was up 1.0 percent before adjustment. The Purchase Index has now narrowed what was once a double-digit deficit to a -4.0 percent year-over-year gap. [purchaseappschart] The Refinance Index decreased 0.3 percent from the previous week and was 94 percent higher than the same week one year ago. Refinance applications made up 46.4 percent of the total, down from 46.6 percent the previous week. [refiappschart] “Most mortgage rates moved lower last week, with the 30-year fixed rate edging down slightly to 6.43 percent. Purchase applications increased more than 3 percent over the week and are inching closer to last year’s levels, with government purchase applications leading the increase,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “ Refinance applications were slightly down but continued to show strong annual gains as borrowers with higher rates have been refinancing to lower their monthly payments. Similar to purchase activity, refinance activity has picked up across the various loan types.”
Home sale numbers continue to retreat and in July the National Association of Realtors’® (NAR) Pending Home Sales Index (PHSI) fell to its lowest level…. Ever! Based on signed sales contracts for existing single-family houses, townhomes, condos, and cooperative apartments, the PHSI was down 5.5 percent from June to 70.2. This is 8.5 percent lower than the index for July 2023. [pendinghomesdata] The PBHSI is considered a leading indicator of home sales over the next one to two months. NAR cautions, however, that the amount of time between pending contracts and completed sales is not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues. The index was benchmarked at 100 in 2001, a year in which contract activity was considered average. “A sales recovery did not occur in midsummer,” said NAR Chief Economist Lawrence Yun. “The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election.” The index fell month-over-month in all four major regions. The Northeast slid 1.4 percent to 64.6 but did pull off a 2.4 percent gain from the previous July. In terms of home sales and prices, the New England region has performed relatively better than other regions in recent months ,” added Yun. “Current lower, falling mortgage rates will no doubt bring buyers into market.”
The mortgage market seemed to be in a wait-and-see mode last week as the Federal Reserve signaled a might, maybe, we are thinking about it, approach to a September rate cut. In the interim, most interest rates inched lower. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, increased 0.5 percent on a seasonally adjusted basis from one week earlier and fell 1.0 percent on an unadjusted basis. The Refinance Index dipped 0.1 percent from the previous week but has now climbed to an 85 percent lead over the same week one year ago. The refinance share of applications increased to 46.6 percent of the total, up from 46.3 percent the prior week. [refiappschart] The seasonally adjusted Purchase Index increased 1.0 percent but was 1.0 percent lower before adjustment. Purchase applications were 9.0 percent lower than the same week one year ago. [purchaseappschart] “Mortgage rates declined for the fourth consecutive week, with the 30-year fixed rate at 6.44 percent, the lowest since April 2023. Rates have now come down more than 80 basis points from a year ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Mortgage applications were slightly higher, driven by marginally stronger purchase activity. Refinance applications were essentially unchanged but are still 85 percent higher than last year as borrowers continue to act – particularly FHA and VA borrowers. As observed in recent weeks, despite lower rates, purchase applications have not moved much. Prospective homebuyers are staying patient now that rates are moving lower and for-sale inventory has started to increase.”
Two major home price indices show home price appreciation is still running well above historical norms. However, increases in the S&P CoreLogic Case-Shiller indices and the Federal Housing Finance Agency’s (FHFA’s)Housing Price Index (HMI) were all slightly smaller than the prior month. The Case-Shiller National Home Price Index, covering all nine U.S. census divisions, reported a 5.4 percent annual gain for June, down from a 5.9 percent increase in May. The 10-City Composite was 7.4 percent higher compared to a 7.8 percent annual increase in the previous month. The 20-City Composite gained 6.5 percent dropping from the earlier +6.9 percent. New York reported 9.0 percent annual growth, the highest among the 20 cities, followed by San Diego and Las Vegas with annual increases of 8.7 percent and 8.5 percent, respectively. Portland once again held the lowest spot for year-over-year growth, 0.8 percent. The U.S. National Index, the 20-City Composite, and the 10-City Composite upward trends continued to decelerate from last month. Their pre-seasonal adjusted increases were 0.5 percent, 0.6 percent, and 0.6 percent, respectively. The seasonally adjusted changes were 0.2 percent for the National Index and 0.4 percent and 0.5 percent for the 20-City and 10-City Composites. "The S&P CoreLogic Case-Shiller Indices continue to show above-trend real price performance when accounting for inflation," says Brian D. Luke, CFA, Head of Commodities, Real & Digital Assets. "Home prices and inflation continue to factor into the political agenda coming into the election season. While both housing and inflation have slowed, the gap between the two is larger than historical norms, with our National Index averaging 2.8 percent more than the Consumer Price Index. That is a full percentage point above the 50-year average. Before accounting for inflation, home prices have risen over 1,100 percent since 1974, but have slightly more than doubled (111 percent) after accounting for inflation.
Existing Homes (the jargon word for a home that has already been owned and occupied) represent a much larger piece of the home sales pie compared to new homes, but the series has been flagging at historically low levels. When rates dropped at the end of 2023, existing sales perked up a bit, but had been moving back toward the long term lows recently. As of the last report, the annualized pace of sales had fallen from just under 4.4m to 3.9m--very close to October 2023's 3.85m--the lowest reading in more than a decade. With today's update, we're suddenly back in business! OK, that's an exaggeration, but we're at least suddenly surviving for one more month without sliding to deeper depths. The official annualized tally for July was 3.95m which was a hair higher than the 3.93m forecast. Other highlights: Inventory up 0.8% m/m and up 19.8% y/y Median price: $422,600, up 4.2% y/y Average time on market: 24 days, up from 22 days in June First time buyers accounted for 29% of sales, same as last month Cash sales accounted for 27%, down from 28% last month, but up from 26% last year Investors accounted for 13%, down sharply from 16% last month and last year Regional sales breakdown: Northeast, up 4.3% from June and up 2.1% annually Midwest unchanged from June and down 5.2% annually South up 1.1% from June and down 3.8% annually West up 1.4% from June and also up 1.4% annually