Applications remain sensitive to mortgage rates.
Mortgage application volume decreased for the second time in three weeks as rates edge up ahead of the spring home buying season, the Mortgage Bankers Association reported Wednesday. Home loan applications fell 7.7% week over week as the 30-year mortgage rate increased 21 basis points to 6.39%, according to data from MBA’s Market Composite Index. “Mortgage rates increased across the board last week, pushed higher by market expectations that inflation will persist, thus requiring the Federal Reserve to keep monetary policy restrictive for a longer time,” said MBA deputy chief economist Joel Kan. Refinance application activity was down by 13% from the previous week, and purchase application volume dropped 6% on a seasonally adjusted basis. “Refinance borrowers, both rate/term and cash-out, remain on the sidelines as current rates provide little financial incentive to act,” Kan said. “Purchase applications dropped to their lowest level since the beginning of this year and were more than 40% lower than a year ago.” Potential buyers, Kan noted, “remain quite sensitive to the current level of mortgage rates, which are more than two percentage points above last year’s levels and have significantly reduced buyers’ purchasing power.” The refinance share of application activity declined 1.9% to 32%, while the adjustable-rate mortgage share of activity rose to 6.9% of total applications.
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Slight increase follows recent interest rate jump and strong jobs report.
The 30-year mortgage rate climbed three basis points following the Central Bank’s interest rates hike and a strong January jobs report. Data from Freddie Mac’s Primary Mortgage Market Survey showed that the 30-year fixed-rate loan edged up to 6.12% from 6.09% week over week. A year ago at this time, the 30-year home loan averaged 3.69%. “The 30-year fixed-rate continues to hover close to 6%, and interested homebuyers are easing their way back to the market just in time for the spring homebuying season,” said Sam Khater, Freddie Mac’s chief economist. The 15-year fixed-rate mortgage followed suit, up to an average of 5.25% from 5.14% the previous week. Last year, the 15-year fixed rate averaged 2.93%. The increase in long-term rates comes after four straight weeks of decreases. Mortgage rates have eased from the 7% peak seen in November as the Fed slowed down its monetary policy tightening. The better-than-expected job growth in January also reduced the likelihood of a recession. However, Marty Green, principal at Polunsky Beitel Green, expects the latest jobs report to prompt the Federal Reserve to increase interest rates by another quarter point at its March meeting. “If the Federal Reserve sees wage pressures as a result of too robust a job market, the quarter-point interest rate increases could continue at several more meetings in the coming months,” Green said. “Markets currently only forecast two more such increases before the Federal Reserve.” Low credit availability driven by declining originations and shrinking industry capacity. Mortgage companies maintained their loose lending standards in January as a way to “cope with lower volumes,” according to the Mortgage Bankers Association. MBA’s Mortgage Credit Availability Index (MCAI) remained flat in January, dipping one basis point to a reading of 103.2. A decline in the MCAI, benchmarked to 100, indicates that lending standards are tightening, while increases in the index indicate loosening credit. “Mortgage credit availability was essentially unchanged in January and remained close to its lowest level since 2013,” said Joel Kan, vice president and deputy chief economist of MBA. “Similar to December 2022, the availability of credit has been driven lower by declining originations and shrinking industry capacity as lenders have streamlined their operations to cope with lower volumes.” Availability of conventional loans dropped 0.3%, while government mortgage credit supply remained unchanged. Of the component indices of the conventional index, the jumbo MCAI posted a 0.4% decrease, and the conforming MCAI stayed the same. “As mortgage rates declined over the past month, the share of adjustable-rate mortgages has fallen – consistent with a slight pullback in ARM offerings in this month’s results,” Kan said. “However, there has been a revival in mortgage application activity over the past month, and our forecast is for rates to continue to decline and housing activity – including home sales and new home construction – to gradually pick up as we approach the spring homebuying season. These developments could potentially change the credit availability landscape in the months ahead.”
But a slowdown is underway.
Home prices in nearly 90% of US metro markets recorded gains in the fourth quarter of 2022 despite mortgage rates exceeding 7%, according to the National Association of Realtors’ latest report. The national median single-family home price rose 4% to $378,700 compared to a year ago, although the year-over-year price appreciation slowed compared to the Q3 pace of 8.6%. NAR chief economist Lawrence Yun noted these cost increases have eclipsed wage increases (up 15%) and consumer price inflation (up 14%) since 2019. “A slowdown in home prices is underway and welcomed, particularly as the typical home price has risen 42% in the past three years,” Yun said. “Far fewer metro markets experienced double-digit price gains in the latest quarter.” Among the US regions, the South saw the largest share of single-family home sales, with year-over-year price appreciation of 4.9%. Prices grew 5.3% in the Northeast, 4.0% in the Midwest, and 2.6% in the West. “Even with a projected reduction in home sales this year, prices are expected to remain stable in the vast majority of the markets due to extremely limited supply,” Yun added. “Moreover, there are signs that buyers are returning as mortgage rates decline, even with inventory levels near historic lows.” The top 10 metro areas with the biggest annual home price growth all recorded gains of at least 14.5%, with seven of these markets located in Florida and the Carolinas. Only one in 10 markets experienced home price declines in Q4, including some of the more expensive parts of the country, which have seen weaker employment and higher instances of residents moving to other areas, according to Yun. Housing affordability in the fourth quarter of 2022 was exacerbated by elevated home prices and mortgage rates, which roughly doubled from the start of the year. A family needed a qualifying income of at least $100,000 to afford a 10% down payment mortgage in 71 markets, up from 59 in the prior quarter. First-time buyers also faced challenges in purchasing a typical starter home in the fourth quarter of 2022. The monthly mortgage payment rose to $1,931 for a typical starter home valued at $321,900 with a 10% down payment loan, a 7% increase from the previous quarter ($1,806) and a 57% increase from one year ago ($1,233). A mortgage is considered unaffordable if the monthly payment (principal and interest) amounts to more than 25% of the family’s income. Inflation and possibility of a recession still loom large
American consumers are kicking off 2023 a bit less confident than they were at the end of last year as inflation and the possibility of a recession loom. The Conference Board reported Tuesday that its consumer confidence index slipped to a still-optimistic 107.1 in January, down from 109 in December. Last month’s reading was the highest the index has reached since April. The business research group’s present situation index - which measures consumers’ assessment of current business and labor market conditions - rose to 150.9 from 147.4. Respondents continue to express optimism about the stability of their incomes and the broader US job market, which has held up well even as the Federal Reserve has tried to cool the economy and with a succession of ``jumbo’’ rate increases. The board’s expectations index - a measure of consumers’ six-month outlook for income, business and labor conditions - deteriorated to 77.8 in January from 83.4 in December. A reading under 80 often signals a recession in the coming year, the Conference Board said. The conference board said consumers’ intention to buy big-ticket items like cars held steady, but plans to purchase homes fell even further with higher interest rates and home prices. Getting a read on consumers’ view of the economy lately has been as uneven as the economy itself. Earlier this month, the government reported that Americans cut back on spending in December for the second straight month as inflation and the rising cost of using credit cards slowed consumer activity over the crucial holiday shopping season. Retail sales fell a worse-than-expected 1.1% in December, following a revised 1% drop in November, the Commerce Department reported. Solid hiring, rising pay, and savings beefed up by government financial support during the pandemic enabled most Americans to keep up with rising prices. That government assistance has long ended, however, and some Americans have dipped into savings accounts since then. Credit card defaults are on the rise with some households slow to adjust their spending to a new reality. Still, the job market is still a pillar of strength in the US economy and wages continue to rise, creating a conflict for the Fed which needs to cool spending and hiring to control inflation. Inflation does appear to be in retreat, falling for the sixth straight month, to 6.5% in December. The willingness to buy a home has faded with mortgage rates that are nearly doubled what they were a year ago. The National Association of Realtors reported earlier this month that sales of previously occupied US homes declined for the 11th straight month in December and 2022 sales declined nearly 18% from 2021. That’s the weakest year for home sales since 2014 and the biggest annual decline since 2008, during the housing crisis of the late 2000s. Activity expected to pick up as spring home buying period nears.
Mortgage application activity stumbled 9% from a week earlier, according to the latest results of the Mortgage Bankers Association’s (MBA) weekly survey. The MBA market composite index dropped 9% on a seasonally adjusted basis for the week ending January 27, while the refinance index was down 7% from the previous week and 80% from the same week last year. The weekly survey also indicated a 10% decrease on the seasonally adjusted purchase index. On an unadjusted basis, this equated to a 7% increase compared to last week and a 41% drop compared to the same week in 2022. MBA vice president and deputy chief economist Joel Kan said overall application activity declined despite lowering interest rates as housing activity remains volatile at this time of the year, adding that purchase activity should soon pick up as the spring homebuying season gets closer and buyers regain purchasing power with the help of lower rates and moderating home price growth. “Mortgage rates declined for the fourth straight week and have now fallen almost 40 basis points over the past month,” he said. “Treasury yields were higher on average last week, while mortgage rates decreased, which was a sign of a narrowing spread between the two.” According to Kan, the spread between mortgage rates and the 10-year Treasury has “been abnormally wide since early 2022” and the further narrowing of this gap should put downward pressure on mortgage rates in the coming months. The refinance share of mortgage activity decreased to 31.2% of total applications from 31.9% a week earlier, the MBA survey additionally revealed, while the adjustable-rate mortgage (ARM) share of activity rose to 6.7% of total applications. Likewise, the FHA share of total applications increased to 12% from 11.9% and the VA share of total applications dropped to 11.9% from 13%. Finally, the USDA share of total applications did not indicate any change from the week prior, staying at 0.6%. Results of last week’s survey showed a 7% seasonally adjusted increase in mortgage applications for the week ending January 20. Refinance applications also climbed 15% from the previous week, and purchase applications grew by 3%. There are shaky property markets across much of the world.
Shaky property markets across much of the world pose another risk to the global economy as higher interest rates erode household finances and threaten to exacerbate falling prices. Reports this week have shown the US housing slump stretched into a fifth month, China’s home sales slide continued and price declines persisted in both Australia and New Zealand. Sliding home values threaten to undermine consumer confidence and weigh on household spending, which had been a rare bright spot for the global economy last year. Investment too could take a hit as developers scale back projects in response to falling prices, waning demand and higher borrowing costs. In the US, last year’s run-up in mortgage rates cast a chill on the housing market, leading to the worst annual drop in sales of previously owned homes in more than a decade. That’s pressured prices, particularly in parts of the country such as San Francisco where affordability was already stretched. That strain is set to continue during the Federal Reserve’s campaign to tackle inflation. Policymakers are widely expected to raise rates by a quarter percentage point at the conclusion of a two-day gathering Wednesday, to a range of 4.5% to 4.75%. China drag: In the world’s No. 2 economy, China’s property slowdown is showing few signs of abating, even as authorities ramp up efforts to revive the industry. New home sales tumbled 32.5% in January from a year earlier, preliminary data from China Real Estate Information Corp. showed on Tuesday. Officials have taken steps to ease financing to cash-strapped developers in recent months, unwinding a deleveraging campaign that triggered a wave of defaults and dragged on economic growth in the nation. Local authorities have also stepped up efforts to stimulate home buying, including by cutting mortgage rates and easing down-payment requirements. Such steps are unlikely to boost sales until mid-year, according to Bloomberg Intelligence analyst Kristy Hung. The prospect of ongoing weakness in China’s property market is a potential headwind to Nomura Holdings Inc.’s otherwise upgraded view of this year’s growth prospects, economists let by Ting Lu wrote in a Jan. 31 note. They cited the official narrative that “housing is for living and not for speculating” and declining prices as brakes on speculative demand. Australia, New Zealand: Prices continued to fall in Australia and New Zealand in January, with the slide likely to continue as neither property market has yet felt the full brunt of last year’s spike in interest rates. Many New Zealand households are on fixed-rate mortgages that have yet to roll over to a new, higher rate. As a consequence, economists are predicting house prices will fall further and will be at least 20% below their late-2021 peak by early 2024. In capital city Wellington, prices have already fallen 18.1% from a year earlier, CoreLogic data show. In the largest city Auckland, prices are down 8.2%. It’s a similar story in Australia, where a spike in loan repayments for those whose mortgages switch to higher variable rates this year is set to weigh on consumption, according to a report by Bloomberg Intelligence. Repayments on 15% of home loans could jump by more than 80% when their ultra-low fixed rate expires, analysts Mohsen Crofts and Jack Baxter said in the report. They estimate the hit to household income will be the equivalent of 2.2 percentage points of retail sales. Housing is even cooling in Singapore, which has been more resilient than many other markets. Home prices rose just 0.4% in the fourth quarter of 2022, the slowest pace in more than two years, figures showed last week. Sales in December dropped to an almost 14-year low. Still, part of the decline has stemmed from a dearth of new property launches, and analysts expect sales to rebound once supply picks up. Wealthy buyers are also buoying the luxury market. One bright sign is coming from Hong Kong, which is seeing glimpses of a housing recovery as the border with mainland China reopens. New home sales in the city may surge more than 50% this year, buoyed by pent-up demand from mainland buyers, according to Bloomberg Intelligence. |
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