NAR chief economist on why this slowdown is different from the Great Recession in 2008.
NAR chief economist Lawrence Yun said that higher mortgage rates, which eclipsed 6% for 30-year fixed mortgages in September and are now approaching 7%, have caused the slowdown in sales. Despite weaker sales, Yun noted that some homes are still receiving multiple offers and selling above the list price due to limited supply. Total housing inventory decreased 2.3% month over month and 0.8% year over year to 1.25 million units in September. At the current sales rate, unsold inventory represents a 3.2-month supply – unchanged from August and up from 2.4 months in September 2021. “The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010 when inventory levels were four times higher than they are today,” Yun said. Properties typically remained on the market for 19 days in September, three days longer than in the previous month. Around 70% of homes sold were on the market for less than a month. The median existing-home price for all housing types was $384,800, an 8.4% increase from last year’s $335,100. While price appreciation continued in September, its pace decelerated for the third month in a row after hitting a record high of $413,800 in June. “In addition to the greater affordability constraints for potential homebuyers, many existing homeowners likely feel ‘locked-in’ to their existing, lower-interest-rate mortgages,” said Doug Duncan, Fannie Mae’s chief economist. “This contributes to fewer homes being listed, as well as fewer potential buyers, and may lead to a growing share of listings having to cut prices to meet the reduced demand. “Furthermore, the supply of completed, new single-family homes for sale has started to rise, suggesting that homebuilders may also need to begin offering greater price concessions to move inventory. We expect these trends to continue in the coming months.”
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Surging rates are "adversely impacting the housing market," Freddie Mac says.
The 30-year fixed mortgage rate is now mere basis points away from reaching 7%, Freddie Mac reported Thursday. Freddie’s latest survey showed that the 30-year fixed-rate mortgage averaged 6.94% as of Oct.20, up from 6.92% last week and 3.09% a year ago. The 15-year fixed-rate mortgage posted a 14-basis-point jump to 6.23%, and the five-year Treasury-indexed hybrid adjustable-rate mortgage was up 10 basis points week over week to 5.71%. Sam Khater, chief economist of Freddie Mac, noted that while mortgage rates slowed their upward trajectory this week, “the 30-year fixed-rate mortgage continues to remain just shy of 7% and is adversely impacting the housing market in the form of declining demand.” According to the Mortgage Bankers Association, mortgage application volume has plunged to its lowest level in 25 years, with refinance and purchase applications down 7% and 4%, respectively. “The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market,” said MBA deputy chief economist Joel Kan. “Residential housing activity ranging from new housing starts to home sales have been on downward trends coinciding with the rise in rates.” “Homebuilder confidence has dropped to half what it was just six months ago, and construction, particularly single-family residential construction, continues to slow down,” Khater added. US housing starts declined 8.1% to a seasonally adjusted rate of 1.44 million in September as rising interest rates continue to exacerbate existing affordability issues. Single-family starts fell 4.7% to an annualized rate of 892,000 in September, while multifamily starts were at a 530,000 pace. Both refinance, and purchase applications continue to fall.
Mortgage applications fell two percentage points week over week, reflecting decreasing demand for home loans as lending rates continue to rise. Overall mortgage application volume was down 2% on both a seasonally adjusted and unadjusted basis for the week ending October 7, according to the Mortgage Bankers Association’s latest survey. The downtrend in application volume was due to the recent spike in mortgage rates. “Mortgage rates moved higher once again during the first week of the fourth quarter of 2022, with the 30- year conforming rate reaching 6.81%, the highest level since 2006,” said Mike Fratantoni, MBA’s senior vice president and chief economist. “Mortgage rates increased across all product types in MBA’s survey, with the largest, a 20-basis-point increase, for five-year ARM loans. The ARM share of applications remained quite high at 11.7% - just below last week’s level.” Refinance application volume declined 2% from the week before and was 86% lower than the same week a year ago. Purchase applications also saw a 2% drop and were 39% lower than last year. The refi share of mortgage activity held steady at 29% of total applications, while the adjustable-rate mortgage share of activity dipped to 11.7%. “Application volumes for both refinancing and home purchases declined and continue to fall further behind last year’s record levels,” Fratantoni said. “The news that job growth and wage growth continued in September is positive for the housing market, as higher incomes support housing demand. However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes.” They are at their highest levels in over 16 years.
US mortgage rates advanced to a fresh 16-year high of 6.81%, extending a rapid ascent in borrowing costs that’s seen dealing a bigger blow to the housing market. The contract rate on a 30-year fixed mortgage rose 6 basis points in the first week of October, marking an eighth-straight increase, according to Mortgage Bankers Association data released Wednesday. That pushed down a gauge of applications to purchase or refinance a home by 2%, the eighth drop in nine weeks, to the lowest level since 1997. Mortgage rates have soared nearly 1.4 percentage points since the end of July as Treasury yields rise in response to the Federal Reserve’s intensified inflation fight. The yield on the 10-year Treasury note has continued to rise this week, suggesting mortgage rates will follow. The MBA’s effective 30-year fixed rate, which includes the effects of compounding, rose to 7.09% in the period ended Oct. 7, also the highest since 2006. MBA’s index of applications to purchase a home dropped 2.1% to 170.5, the lowest level since 2015, while the gauge of refinancing dropped 1.8% to a fresh 22-year low. The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data covers more than 75% of all retail residential mortgage applications in the US. Households also being squeezed out of home buying market as rates soar.
Renters are facing a triple blow from increased rental prices, soaring inflation and the end of the national eviction ban, according to reports. Higher rental prices are expected to continue until next year, mostly due to the fact that demand for rental properties has soared, as many families have been edged out of the house buying market due to rising interest rates and property values. According to recent US Census Bureau figures, there are between 43 million and 44 million people who are renter occupiers, while renter-occupied units made up 30.9% of the inventory in the first quarter 2022. Last month, data released by CoreLogic showed that despite single-family rent increases leveling out for the third straight month in July, they were still 12.6% higher compared to the same period in 2021. Miami showed the biggest gain, with rents up nearly 31% from the year before, although this was before Hurricane Ian struck Florida. Meanwhile, a recent report from real estate brokerage HouseCanary revealed that rent prices for single family homes hit $2,495 a month on average during the first half of the year, representing an even bigger year on year increase (13.4%). The report listed Los Angeles, Long Beach, Anaheim, San Diego and Carlsbad in California as the US metro areas with the most expensive monthly rents ($4,664), followed by Bridgeport, Stamford, and Norwalk in Connecticut ($4,617). By contrast, Youngstown, Warren and Boardman - all in Ohio - reported having the lowest monthly rental prices ($861). According to estimates by Apartment List, which included data from the start of the COVID period, rents across 39 large and medium-sized metropolitan areas have soared by 27.2% since March 2020. Rents initially declined sharply at the start of the pandemic as remote working took hold and renters relocated away from city hubs. In addition, job losses forced many workers to give up their leases as they were no longer affordable. However, “big city prices have bounced back” since then, thanks largely to rising employment and people returning to work, although remote working flexibility is still evident among a “sizable share of the workforce”. Another report by the Federal Reserve Bank of Dallas confirmed that surging house prices have steadily pushed up rent and owners’ equivalent rent (OER) - that is the amount of rent equivalent to the cost of homeownership. This has happened despite a fall in demand for home purchases in recent months and slow house-price growth. Nonetheless, the consequence of the Fed’s attempts to tackle 8.3% inflation by increasing the benchmark interest rate has been sharply rising mortgage rates, which is impacting on affordability. The Federal Reserve Bank of Dallas report said year-over-year OER inflation was expected to continue rising from 5.4% in June 2022 to 7.7% in May 2023 before easing. Additionally, rent inflation was expected to increase from 5.8% in June 2022 to 8.4% in May 2023. Another consequence of rising rental prices is that 15% - around six million American households - are behind on their rent payments, according to a recent report by commercial real estate website MyEListing.com. It revealed that renters in South Dakota, Alabama, and New Jersey have the most trouble making their monthly payments, while renters in Miami, Houston, and Philadelphia were most behind on their rent. It also reported that more middle-aged Americans were falling behind on rent than younger and older generations, with 22% of those aged 40 to 54 more likely to fall behind on rent the most. The national eviction ban was overturned by the Supreme Court in August 2021. Reports at the time calculated that there were 11 million Americans still behind on their rent, which suggests that the number of renters in that situation has fallen drastically since then. Last month, Fannie Mae launched its Multifamily Positive Rent Payment Reporting pilot program in a bid to help renters build credit and encourage them to become homeowners. Possibilities may open up for investors…
The prospect of declines in home prices as mortgage rates soar is hitting homebuilding stocks hard. Whether the low valuations present opportunities for investors, however, depends on what happens to the housing market. Many of the companies are trading below their book values, and the group is “baking in a tremendous amount of bad news,” UBS Securities analyst John Lovallo said in an interview. The S&P Supercomposite Homebuilding Index was down 43% through mid-June due to surging mortgage rates as the Federal Reserve kicked off a tightening cycle to tame inflation. The gauge has rebounded 18% since then, and it was essentially flat for the third quarter. The sector outperformed the broader market’s slump on Thursday, gaining 0.9% as Toll Brothers Inc. and M.D.C. Holdings Inc. led to the upside. Home prices ticked lower month-over-month in July for the first time in a decade, according to S&P Corelogic Case-Shiller index data, after they surged during the pandemic. Mortgage rates, which last week hit the highest level since 2007, according to Freddie Mac data, eased slightly to 6.66% in Thursday’s reading. A key disagreement between bulls and bears is how far home prices will fall, Evercore ISI analyst Stephen Kim said in an interview. “This is really about looking at home prices and saying ‘are they going to bend, or are they going to break?’” He has an overweight rating on all the homebuilders in his coverage. With many of the stocks trading below book value, the firms “appear to be discounting a scenario where home prices fall 20-25%, because this is the amount of price reduction that would cause the builders to take large impairments to their land holdings and drive down book value,” Kim wrote in a report earlier this week. He doesn’t expect such a downturn because of a dearth of housing inventory in the US. Meanwhile, Keybanc Capital Markets analyst Kenneth Zener recently upgraded his rating on the sector, lifting it to overweight from underweight on a quantitative approach. In observing past Fed tightening cycles, he said homebuilders experience “early pain” but then are among sectors to see an “early gain” as the cycle runs its course. Zener’s recommendations have produced the best total returns across at least four of the builders over the past year, according to data compiled by Bloomberg. He isn’t calling for a bottom in the stocks, but instead expects a positive relative performance compared with the S&P 500 Index. When the sub-index of builders’ stocks hit its lowest level of the year in June, it had fallen almost twice as much as the S&P 500 had at that point, even as the broader benchmark hit bear territory. As of Thursday’s close, it had narrowed the gap to about 11 percentage points. Going into earnings season, investors are bracing for orders to be “pretty bad,” Lovallo said, with attention focused on the firms’ gross margins. Though he said sometimes cuts to estimates can draw positive market reactions when seen as a “clearing event.” The industry could also get a boost from a “hope trade” ahead of the spring selling season, Lovallo said. November has historically been one of the best months for the group. “We’re constructive and believe that once we get some settling in rates, these stocks could work,” Lovallo said. “Until then it’s going to be bumpy.” The 30 year mortgage rate ends six-week ascent but is still close to record highs.
Current mortgage rates finally tumbled after their six-week climb, but Freddie Mac said they remain close to levels not seen in more than a decade. Freddie’s latest survey showed that the average 30-year fixed-rate mortgage retreated four basis points from last week to 6.66% as of October 6. The popular home loan rate stood at 2.99% a year ago and now hovers near 15-year highs. The 15-year fixed mortgage rate also posted a modest decline this week, down to 5.90% from 5.96% the previous week. The average 15-year rate was only 2.23% a year ago. Meanwhile, the five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.36%, up from 5.30% the week before and from 2.52% a year ago. “Mortgage rates decreased slightly this week due to ongoing economic uncertainty,” said Sam Khater, chief economist of Freddie Mac. “However, rates remain quite high compared to just one year ago, meaning housing continues to be more expensive for potential homebuyers.” As interest rates continue to spiral, mortgage loan applications plummeted 14.2% to their slowest pace since 1997, according to the Mortgage Bankers Association. “The current rate has more than doubled over the past year and has increased 130 basis points in the past seven weeks alone,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “The steep increase in rates continued to halt refinance activity and is also impacting purchase applications, which have fallen 37% behind last year’s pace.” Prices are decelerating faster than initially anticipated.
US home prices in August experienced their lowest year-over-year appreciation since April 2021, according to the latest CoreLogic Home Price Index report. Due to higher mortgage rates cooling buyer demand, annual home price growth slowed for the fourth straight month to a 13.5% pace, down seven basis points from July. According to CoreLogic, the monthly dip indicates reduced homebuyer enthusiasm, with nearly three-quarters of states posting declines from July. “The increased cost of homeownership has dampened buyer demand and caused prices to decelerate at a faster pace than initially expected,” said CoreLogic chief economist Selma Hepp. “Housing markets on the West Coast and in the Mountain West, as well as second-home markets, recorded particularly strong price growth in the summer of 2021 but were the first to see month-over-month price declines during the same period this year.” Of the country’s 20 largest metro areas, Miami registered the highest year-over-year home price gain in August at 27.1%, followed by Tampa at 26.9%. Hurricane Ian’s impact on Tampa’s housing market and other parts of Florida could cause price growth there to decelerate even more than the projected US slowdown. CoreLogic expects home price gains to slow to 3.2% by August 2023. “While decelerating price growth and price declines benefit younger potential homebuyers, mortgage rates that are approaching 7% may cut many hopefuls out of the picture,” Hepp said. Share of mortgage applications continues to dwindle.
Refinance dollar volume shrank even further in the final week of September as mortgage rates hit new, record highs. Refi applications have been plummeting for several months now, but, last week, they experienced the biggest decline for a non-holiday week since March 2020, when many lenders temporarily paused business activity due to the onset of the COVID-19 pandemic. Fannie Mae reported a 21.8% week-over-week decline in its RALI dollar volume. The index was down 83.8% from the same week last year, and its four-week average was down 9.4%. The RALI count fell 19.8% week over week and was down 82.7% from a year ago. “With mortgage rates now sharply higher compared to this time last year, the RALI reached its lowest level since the refi slowdown in January 2014,” Fannie Mae chief economist Doug Duncan said. The RALI dollar volume was 22.3% below the refinance levels during the refi slowdown in the fourth quarter of 2014. Compared to the refi boom, it was down 88.7%. Home lending activity log at slowest pace in 25 years.
The Mortgage Bankers Association reported a double-digit weekly decrease in mortgage application volume for the week ending Sept. 30. Overall mortgage loan applications plunged 14.2% on a seasonally adjusted basis from the previous week, the slowest pace in 25 years. The prime explanation for the pullback in application activity, according to MBA associate vice president Joel Kan, was the recent spike in mortgage rates. “The 30-year fixed rate hit 6.75% last week – the highest rate since 2006,” Kan said. “The current rate has more than doubled over the past year and has increased 130 basis points in the past seven weeks alone.” Kan added that the steep rate increase continued to halt refinance activity (-18% week over week) and purchase applications (-13%). Year over year, refi applications have fallen behind by 86%, and purchase applications were down 37%. “Additionally, the spreads between the conforming rate compared to jumbo loans widened again, and we saw the ARM share rise further to almost 12% of applications,” Kan said. “There was also an impact from Hurricane Ian’s arrival in Florida last week, which prompted widespread closings and evacuations. Applications in Florida fell 31%, compared to 14% overall, on a non-seasonally adjusted basis.” The refinance share of mortgage activity dropped to 29% of total applications, while the adjustable-rate mortgage share rose to 11.8% of total applications. |
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