66,000 new home sales in June, down from 68,000 sales in May
Mortgage applications for new home purchases in June decreased 3% from May and 23.8% year over year, suggesting a slowdown in the housing market, according to a recent report from the Mortgage Bankers Association.
New single-family home sales were reported at a seasonally adjusted annual rate of 704,000 units in June, a decrease of 5% from May’s pace of 741,000. The MBA estimates there were 66,000 new home sales in June, down from 68,000 such sales in May.
Overall sales of new homes are still down 7% from last year, according to Joel Kan, MBA associate vice president of economic and industry forecasting.
“Last year was the strongest year in the housing market for new home sales in over a decade,” he said. “Right now, homebuilders are encountering stronger headwinds, as severe price increases for key building materials, rising regulatory costs, and labor shortages impact their ability to raise production. This has dampened new home sales and quickened home-price growth.”
Mark Palim, deputy chief economist at Fannie Mae, said anecdotal reports of builders delaying or turning down orders to clear a growing construction backlog appears to be borne out by the recent housing starts data.
“The month’s increase in single-family starts coincided with a slowdown in single-family permits, which fell 6.3 percent,” Palim said Tuesday. “While this data tends to be noisy on a month-to-month basis, the divergence between starts and permits is consistent with builders struggling to keep up with orders, as is the tick up in homes authorized but not yet started. With lumber prices recently pulling back, we expect some near-term strength in construction. However, June’s starts gain was somewhat smaller than we had anticipated while the fall in permits was greater. Therefore, a modest downward revision to our near-term forecast is likely.”
Homes for sale are still being snatched up quickly throughout the country, but a recent slowdown in bidding wars may signal some buyer fatigue in the housing market. Redfin reported recently that 65% of home offers written by company agents in June faced competition, down from a rate of 72.1% in May and a peak of 74.1% in April. New listings are also up 4% year over year, meaning more properties are hitting the housing market for buyers to bid on.
In 2018-2019, total housing market inventory was in the range between 1.52 million and 1.92 million, and that level of inventory helped to drive real home-price growth in 2019 into negative territory briefly. Existing home sales during those years stayed in the monthly sale range of 4.98 million to 5.61 million homes, according to the National Association of Realtors.
Then the COVID-19 pandemic hit, and after eight months of consecutive gains spanning 2020 and 2021, the consequences of low home inventory finally caught up with the housing market in February 2021.
Conventional mortgage loans composed 74.4% of loan applications in June, while FHA loans composed 14%. RHS/USDA loans composed 1% and VA loans composed 10.6%. The average loan size of new homes increased from $384,323 in May to $392,370 in June.
“Still-low levels of for-sale inventory are also pushing prices higher as competition for available units remains high among prospective buyers,” Kan said. “In addition to price increases, we are also seeing fewer purchase transactions in the lower price tiers as more of these potential buyers are being priced out of the market, further exerting upward pressure on loan balances.”
Home equity of those aged 62+ gained billions in Q1 2021
The amount of home equity held by homeowners 62 and older continued to exceed record levels during the first quarter of 2021, increasing the potential opportunity for reverse mortgages to over $9 trillion.
Senior homeowners gained $304 billion in housing wealth in Q1 2021, up 3.4% from Q4 2020, according to the National Reverse Mortgage Lenders Association. The aggregate value of senior home equity now totals $9.23 trillion.
The gain was driven by an estimated $329 billion (3%) increase in home values, offset by a $23.9 billion (1.2%) increase in senior-held mortgage debt. As a result, the NRMLA/RiskSpan Reverse Mortgage Market Index (RMMI) climbed to 322.89 in the first quarter, reaching a new peak since the index was first published in 2000.
RiskSpan noted that the increase in the RMMI occurred mainly because it used the 2019 American Community Survey (ACS) to estimate the updated size of the 62+ homeowner population and senior home values, while the data source for estimating senior loan-to-value (LTV) levels was updated using the 2016 Survey of Consumer Finances.
“New research from Fidelity forecasts the average 65-year-old couple will spend $300,000 on healthcare in retirement, while single women will spend $157,000 and single men $143,000,” said NRMLA president Steve Irwin. “As the Baby Boomer generation grows older, and the strain on government resources tightens, the strategic use of home equity can help retirees cope with these potential challenges.”
New loan modifications aim to keep more borrowers in their homes
The Biden administration is offering delinquent borrowers new loan modifications and payment reductions in a bid to help them stay in their homes after the foreclosure moratorium expires on July 31.
The White House on Friday said that homeowners with government-backed mortgages that have been negatively impacted by the pandemic will receive enhanced assistance. The new steps aim to extend the length of their mortgages up to 40 years and lower monthly principal and interest (P&I) payments by 25% to ensure borrowers can afford to stay in their homes.
The additional options come a month after the Centers for Disease Control and Prevention extended the nationwide eviction and foreclosure bans until the end of July, which CDC director Dr. Rochelle Walensky promised would be the last time they would do so.
Under the moratorium, homeowners with federally guaranteed mortgages can miss monthly payments for up to 18 months without penalty and repay them later. That relief is set to expire in September for borrowers who entered into forbearance plans early in the pandemic. Certain borrowers earning less than before the pandemic who can’t resume their regular monthly payments are given up to three months of additional forbearance.
“Today, approximately 1.75 million Americans remain in forbearance,” the White House said in a statement. “In order to ensure a stable and equitable recovery from the disruptions of the COVID-19 pandemic and prepare for homeowners to exit mortgage forbearance, the Biden-Harris Administration is taking action to keep Americans in their homes and support a return to a more stable housing market.”
Deferring mortgage payments, lowering interest rates, or extending mortgage terms have been effective in helping homeowners strapped for cash during an economic recession, according to the Wall Street Journal, citing research examining the 2008-09 financial crisis.
Shortage of entry-level single-family homes slumps to 50-year low
A growing shortage of entry-level single-family homes, or “starter homes”, is posing an enormous threat to prospective first-time buyers, according to Freddie Mac.
The supply of starter homes, which the mortgage giant defines as homes up to 1,400 square feet, is hovering near a 50-year low. Data from the National Association of Home Builders suggests that the construction of entry-level single-family homes has declined over the years as home sizes grew bigger due to pandemic-induced demand for more living space.
NAHB’s analysis showed that the median single-family square floor area was 2,274 square feet, while the average square footage for new single-family homes inched down to 2,475.
“Home size rose from 2009 to 2015 as entry-level new construction was constrained, but home size has declined since 2016 as more starter homes were developed,” NAHB chief economist Robert Dietz said. “Going forward, we expect home size to increase once again, given a shift in consumer preferences for more space due to the increased use and roles of homes (for work, for study) in the post-COVID-19 environment.”
Smaller homes were more accessible to first-time buyers from previous generations. In the late 1970s, an average of 418,000 new entry-level home units were built per year, according to Freddie Mac. By the 2010s, that figure had shrunk to 55,000 new units each year, and, in 2020, only 65,000 entry-level homes were completed.
“As we navigate our way through the year and get beyond the pandemic, we expect the housing supply shortage to continue to be one of the largest obstacles to inclusive economic growth in the US. Simply put, we must build more single-family entry-level housing to address this shortage, which has strong implications for the wealth, health and stability of American communities,” said Sam Khater, chief economist and head of Freddie Mac’s economic and housing research unit.
Demand for mortgages weakened again as limited inventory and skyrocketing prices continue to keep some prospective buyers out of the market.
Mortgage application volume fell 4% week over week on a seasonally adjusted basis but was up 20% on an unadjusted basis, according to the Mortgage Bankers Association’s survey released Wednesday. Refinance applications dropped 3% week over week and slipped 18% year over year. Seasonally adjusted purchase apps decreased 6% week over week, while the unadjusted purchase index rose 17%.
“On a seasonally adjusted basis compared to the July 04 holiday week, mortgage applications were lower across the board, with purchase applications back to near their lowest levels since May 2020,” said Joel Kan, AVP of economic and industry forecasting at MBA. “Refinance activity fell over the week, but because rates have stayed relatively low, the pace of applications was close to its highest level since early May 2021.”
Kan explained that the volatility in mortgage rates spurred the drop in mortgage applications.
“The 10-year Treasury yield dropped sharply last week, in part due to investors becoming more concerned about the spread of COVID variants and their impact on global economic growth. There were mixed changes in mortgage rates as a result, with the 30-year fixed rate increasing slightly to 3.11% after two weeks of declines,” he said. “Other surveyed rates moved lower, with the 15-year fixed-rate loan, used by around 20% of refinance borrowers, decreasing to 2.46% – the lowest level since January 2021.”
The refi share of mortgage activity posted an eight-basis-point increase, up to 64.9% of total applications. The adjustable-rate mortgage (ARM) share of activity dipped to 3.3% of total applications.
They are down for the third straight month.
Stronger headwinds, such as severe price hikes, rising regulatory costs, and labor shortages, continued to hinder homebuilders’ ability to raise production in June, according to the Mortgage Bankers Association.
Data from MBA’s new survey revealed that mortgage applications for new home purchases fell 23.8% from a year ago. Month over month, applications dropped by 3% on a seasonally unadjusted basis.
Joel Kan, associate vice president of economic and industry forecasting at MBA, said that the challenges homebuilders face have dampened new homes sales and quickened home-price growth.
“Additionally, still-low levels of for-sale inventory are also pushing prices higher as competition for available units remains high among prospective buyers,” Kan added. “Applications for new home purchases fell for the third consecutive month, while the average loan amount surged to another record high at $392,370. In addition to price increases, we are also seeing fewer purchase transactions in the lower price tiers as more of these potential buyers are being priced out of the market, further exerting upward pressure on loan balances.”
MBA estimated that new single-family home sales in June plummeted to their lowest annual pace since May 2020 at 704,000 units. This is down 5% from the May pace of 741,000 units. On an unadjusted basis, MBA estimates that new home sales were running at a 66,000 rate in June, down 2.9% from 68,000 new home sales in May.
“The average pace of sales has remained strong at around 738,000 for the past three months, but it is still around 7% lower than the average for 2020,” Kan said. “Last year was the strongest year for new home sales in over a decade.”
By product type, conventional loans made up 74.4% of loan applications, FHA loans composed 14%, RHS/USDA loans composed 1% and VA loans composed 10.6%. The average loan size of new homes increased from $384,323 in May to $392,370 in June.
Market feeling the after-effects of buyer stampede
In the most competitive housing market in US history, sales are beginning to stall.
Home transactions fell 1.2% in June from May, the largest drop for the month in records going back to 2012, according to seasonally adjusted data from Redfin Corp. The inventory reached an all-time low, with buyers scooping up properties in 14 days, the fastest pace ever.
Remote work combined with rock-bottom mortgage rates unleashed a stampede of buyers to the suburbs and affordable cities across the US. The median home price in June jumped 25% from a year earlier to a record $386,888.
“We entered a new phase of the housing market,” Redfin chief economist Daryl Fairweather said in a statement. “Prices have increased beyond what many buyers can afford.”
Values rose from a year earlier in all of the 85 metro areas Redfin tracks. The biggest jump was in Austin, Texas, at 43%. Following were Lake County, Illinois, with a 31% gain, and Phoenix, at 30%.
San Francisco, one of the country’s most expensive markets, had the smallest increase, at 2.6%.
More Americans express greater negativity toward home buying
Most American consumers strongly think it is a good time to sell as home prices show no signs of dropping anytime soon.
Fannie Mae’s Home Purchase Sentiment Index (HPSI) was largely unchanged in June at a reading of 79.9. However, there was a notable discrepancy between its “Good Time to Buy” and “Good Time to Sell” components. The share of consumers who think it is a good time to buy was just 32%, compared to 77% of those who think it’s a good time to sell.
“The HPSI remained flat this month, although its underlying buy and sell components continued to diverge, setting record positive and negative readings, respectively,” said Fannie Mae chief economist Doug Duncan. “Consumers also continued to cite high home prices as the predominant reason for their ongoing and significant divergence in sentiment toward home buying and home-selling conditions.
“While all surveyed segments have expressed greater negativity toward home buying over the last few months, renters who say they are planning to buy a home in the next few years have demonstrated an even steeper decline in home buying sentiment than homeowners. It’s likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments who have already established homeownership.”
Four of the six HPSI components fell month over month in June. Component highlights include:
“Despite the pessimism in home buying conditions, we expect demand for housing to persist at an elevated level through the rest of the year. Mortgage rates remain not too far from their historic lows, and consumers are expressing even greater confidence about their household income and job situation compared to this time last year, when the pandemic had shut down wide swaths of the economy,” Duncan said.
Both types of applications posted declines
Mortgage application activity declined for the second consecutive week, hitting its lowest level since the start of 2020.
Even though mortgage rates edged down from last week, mortgage apps fell 1.8% on a seasonally adjusted basis, according to the Mortgage Bankers Association. Both purchase and refinance applications also decreased. MBA’s refi index dropped 2% week over week, while the purchase index dipped 1% from the week prior.
“Treasury yields have been volatile despite mostly positive economic news, including last week’s June jobs report, which showed ongoing improvements in the labor market,” said Joel Kan, AVP of economic and industry forecasting at MBA. “However, rates continued to move lower – especially late in the week. The 30-year fixed-rate was 11 basis points lower than the same week a year ago, but many borrowers previously refinanced at even lower rates. Refinance applications have trended lower than 2020 levels for the past four months.”
Kan added that accelerated home price growth, fueled by insufficient housing supply, is weighing on the purchase market and is pushing average loan amounts higher.
The refinance share of mortgage activity saw a three basis point drop to 61.6% of total applications. Likewise, the adjustable-rate mortgage (ARM) share of activity decreased to 3.3% of total applications.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased from 3.20% to 3.15%. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) also dwindled, down from 3.23% to 3.20%.