Another week brings a new low for purchase mortgage applications.
US mortgage applications fell for the second straight week, with purchase activity declining to its lowest level since June. The Market Composite Index – the Mortgage Bankers Association’s gauge of application volume – posted a 3% drop during the week ending July 28. Both refinance and purchase application volumes were also down 3% on a seasonally adjusted basis, driven by a six-basis point rise in the contract interest rate for 30-year mortgages. “Mortgage rates edged higher last week, with the 30-year fixed mortgage rate’s increase to 6.93% and leading to another decline in overall applications,” said Joel Kan, MBA’s deputy chief economist. “The decline in purchase activity was driven mainly by weaker conventional purchase application volume, as limited housing inventory and rates still close to 7% are crimping affordability for many potential homebuyers.” According to MBA’s Builder Application Survey, the median mortgage payment for purchase mortgages climbed from $2,515 in May to $2,520 in June. Of total applications, the refi share of mortgage activity remained flat at 28.9%, while the adjustable-rate mortgage (ARM) share of activity increased to 6.5%. “The refinance market continues to feel the impact of these higher rates, and applications trailed last year’s pace by over 30% with many homeowners not looking for refinance opportunities,” Kan said.
0 Comments
Higher payment for purchase mortgages offsets gain in earnings. Mortgage payments in June remained relatively unaffordable for most homebuyers due to elevated rates and home prices, according to the Mortgage Bankers Association. MBA’s latest Purchase Applications Payment Index (PAPI) showed that borrower affordability was essentially flat in June, with the national median payment applied for by purchase applicants dropping 0.1% to $2,162. While the index decreased slightly, it remained at high levels. Payments spiked 14.2% year over year, offsetting the 5.7% annual gain in median earnings. Meanwhile, the national mortgage payment decreased slightly to $1,459 in June from $1,462 in May for borrowers applying for lower-payment mortgages (the 25th percentile).
“Homebuyer affordability is still strained this summer, with mortgage rates remaining high and volatile, and home prices high because of low inventory,” said Edward Seiler, associate vice president of housing economics at MBA. Seiler noted that the median purchase application amount fell from $330,000 to $326,000 in June, which he said is a “positive sign that home prices are stabilizing. An ongoing combination of flattening home prices and lower rates would offer reprieve for households who are looking to buy a home.” The new S&P CoreLogic home price index was up 0.7% nationally, continuing the slowdown of the last few months. The gains come as long-term mortgage rates hover around 6% to 7%. According to Freddie Mac, the 30-year fixed-rate loan averaged 6.78% as of July 27. Applications drop to one-month low.
Mortgage demand from homebuyers dwindled for the week ending July 21 as borrowers backed off amid a housing market that remains unaffordable for many. The Market Composite Index – a measure of mortgage application volume – was down 1.8% on a seasonally adjusted basis from a week ago, the Mortgage Bankers Association said today. When unadjusted, the index was down 1.5% compared with the previous week. “Mortgage rates were essentially flat last week but remained high, with the 30-year fixed staying at 6.87% and contributing to a pullback in mortgage applications,” said Joel Kan, MBA’s deputy chief economist. MBA’s refinance index slipped 0.4% from the prior week. The seasonally adjusted purchase index fell 3% to its lowest level in over a month. Kan said the decline in purchase activity was partly driven by a 10% decrease in FHA applications, which decreased nine basis points to 12.7%. “The decrease in FHA purchase applications contributed to an increase in the overall average purchase loan size to $432,700, its highest level since the end of this May,” he added. “Refinance applications remained lackluster, running 30% behind year-ago levels. Many borrowers remain on the sidelines given current rates and persistent affordability challenges.” They surpass the usual real estate laggards.
About $24.8 billion of US office buildings were in distress at the end of the second quarter, surpassing previous leading commercial real estate laggards — hotels and retail properties. The total value of offices that were financially troubled or already repossessed by lenders shot up about 36% from the first quarter, MSCI Real Assets reported Wednesday. At the end of June, $22.7 billion of retail properties — including malls — and $13.5 billion of hotels were in distress. The total for all troubled commercial properties was almost $72 billion, up 13% from the first quarter. “The office sector was responsible for the largest share of marketwide distress,” according to the report, based on filings for bankruptcies, defaults and other publicly reported property issues. “It’s the first time since 2018 that neither the retail nor hotel sector was the biggest contributor.” It’s likely to get worse for offices. “The things needed to slow the pace aren’t happening,” Jim Costello, an MSCI economist and a co-author of the report, said in an interview. “Investors are putting a low probability on debt becoming cheap and everybody being back in the office like they were before.” MSCI identified an additional $162 billion of properties in potential distress, with problems such as delinquent loan payments, high vacancies or maturing debt. US offices face higher stress than other real estate sectors because of weak demand as remote work gains widespread acceptance. Office use in 10 major US cities is at about half of its pre-pandemic rate on average, according to badge-swipe data from Kastle Systems Inc. More than 20% of US office space was vacant as of June 30, brokerage Jones Lang LaSalle Inc. reported. Prices for office buildings fell 27% in the year through June, compared with a 12% decline for all commercial-property types, according to real estate analytics firm Green Street. Corporate landlords such as Blackstone Inc., Brookfield Asset Management Ltd. and Starwood Capital Group have stopped payments on office buildings they’ve deemed to be money losers. Office properties with maturing debt are among the most vulnerable to stress because the cost of borrowing has soared since the Federal Reserve started raising interest rates last year to try to cool inflation. About $189 billion of debt on office buildings is estimated to mature in 2023 with an additional $117 billion due in 2024, according to the Mortgage Bankers Association. Elevated mortgage rates and affordability issues could throttle builder momentum, experts say.
US housing starts slowed in June as higher mortgage rates continued to make it harder for eager homebuyers to purchase and for builders to meet pent-up demand. New residential construction came in below expectations at a seasonally adjusted annual rate of 1.43 million, 8% below the downward revised May estimate of 1.56 million, the Census Bureau said Wednesday. Within this figure, single-family production declined after four straight monthly gains, down 7% month over month to a 935,000 rate. Multifamily starts also declined in June, down 9.9% to an annualized 482,000 pace. Overall permits fell 3.7% to a seasonally adjusted annual rate of 1.44 million, with single-family authorizations coming in at 922,000 (+2.2%) and multifamily permits at 467,000 (-12.8%). Builders completed 1.47 million units in June – 3.3% below the annualized revised May estimate of 1.52 million. Single‐family housing completions were 986,000, while the rate for units in buildings with five units or more was 476,000. Despite the lower June reading, several factors paint a promising picture for overall construction activity, according to NerdWallet home expert Holden Lewis. “Homebuilders started construction on fewer dwellings in June than in May,” Lewis said. “Looking at the bigger picture, construction activity is strong. We’ve seen a two-month surge in construction of single-family houses, which are in short supply. At the same time, builders are breaking ground on fewer apartments.” Kelly Mangold, principal at RCLCO Real Estate Consulting, highlighted a more positive builder sentiment, which inched higher in July to the highest level since June 2022. “There are many factors that point towards the housing market moving into recovery as builder sentiment continues to improve,” she said. “Builders are benefitting from the lack of resale inventory, but higher mortgage rates pose a threat. Reduced affordability alongside ongoing supply-side challenges and tighter lending standards for acquisition, development and construction (AD&C) loans could throttle builder momentum.” Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis, added that a projected easing in mortgage rates later this year can help improve affordability issues. “We anticipate mortgage rates will stabilize later this year in anticipation of the end of Federal Reserve’s tightening cycle,” Nanayakkara-Skillington said. “In turn, this could bring home buyers back to the market as affordability conditions improve.” High mortgage rates are causing homeowners to stay in place.
The US home turnover rate in the first half of 2023 has fallen to the lowest in at least a decade as high mortgage rates compel owners to stay put, Redfin Corp. said. About 14 out of every 1,000 US homes changed hands during this period, down from 19 in the same period during 2019, according to the real estate brokerage’s report examining housing turnover since the pandemic. California, and specifically the San Francisco Bay Area, had the least housing availability out of any state, the report said. The brokerage said only 6 out of 1,000 San Jose homes changed hands this year. From 2019 to 2023, California turnover dropped 30% in the metros of Oakland, San Diego, Los Angeles, Sacramento and Anaheim. “The quick increase in mortgage rates created an uphill battle for many Americans who want to buy a home by locking up inventory and making the homes that do hit the market too expensive,” Redfin Deputy Chief Economist Taylor Marr said in a statement. The highest turnover rate was in Newark, New Jersey, with 24 of every 1,000 homes changing hands. Nashville and Austin follow closely behind. Redfin’s report examined turnover rates in the 50 most populous metropolitan divisions in the US. The analysis was based on data, county records and the Department of Housing and Urban Development’s urbanization perceptions small area index. The benchmark 30-year home loan rate climbs near 7%. The average 30-year mortgage rate hit its highest level since November 2022, the last time it broke 7%, according to Freddie Mac. Freddie Mac reported Thursday that the 30-year fixed-rate mortgage spiked 15 basis points to 6.96%, while the 15-year loan posted a six-basis-point increase to 6.30%. “Incoming data suggest that inflation is softening, falling to its lowest annual rate in more than two years,” Freddie Mac chief economist Sam Khater said. “However, increases in housing costs, which account for a large share of inflation, remain stubbornly high, mainly due to low inventory relative to demand.”
Erin Sykes, chief economist at Nest Seekers International, commented: “The 30-year mortgage has hovered right around 7% for about nine months despite the Fed continuing to hike rates. My expectation is that it stays there for the foreseeable future with minor fluctuations higher/lower. This is in line with the 50-year average of 7.77%.” “The Fed understands that fighting inflation is a bit like fighting a fire,” added Marty Green, principal at mortgage law firm Polunsky Beitel Green. “Just because the flames have calmed down, for now, doesn’t mean the ingredients for a flare-up aren’t still there. But the continued progress on the inflation front should relieve the pressure on the Federal Reserve to tighten interest rates further after the July increase, which should, in turn, have a positive impact on mortgage rates.” New report shows why those all-important numbers are slipping for some.
Credit reporting company TransUnion has just released a report with a dull title “Score Migration Impact to the Credit Ecosystem,” but some interesting observations – it appears that we are seeing a nationwide drop in credit scores. The study reveals that although clients’ credit scores experienced a significant boost during the initial stages of the COVID-19 pandemic, thanks to government assistance programs, reduced credit usage, and forbearance options for loan payments, some of those consumers who transitioned to higher credit score ranges are now facing higher delinquency rates compared to historical data for those risk tiers. The rise in credit scores can be attributed to two key factors. Firstly, individuals benefited from lower credit balances and utilization due to reduced spending during the lockdown and surplus funds provided by government assistance. Secondly, lower delinquencies were observed as a result of payment forbearance programs and increased liquidity, allowing consumers to stay current on their payments. During the pandemic, with many activities and travel plans put on hold, consumers utilized their savings, along with additional relief funds from the government, to pay off their credit balances. This led to decreased balances, making it easier for consumers to stay up to date with their payments and resulting in lower delinquency rates. Consequently, credit scores improved, granting individuals greater access to credit. Median credit scores experienced a significant surge during the pandemic and have remained elevated since then. However, as government assistance programs came to an end and inflation started to rise in mid-2021, consumer demand for credit increased. Products such as credit cards and personal loans, which offer immediate liquidity, saw particularly high demand. Lenders also became more willing to provide these credit products, leading to a 58.8% increase in credit card originations and a 54.3% increase in unsecured personal loan originations in 2022 compared to the previous year. The study also highlighted a concerning trend among borrowers who had recently transitioned to a higher credit risk range. Many of these borrowers began reverting to their previous credit behaviors, resulting in delinquency rates similar to those with lower credit scores prior to the pandemic. For instance, the delinquency rate of a sub-segment of new unsecured personal loan borrowers in Q3 2021, who had recently migrated to a higher credit score, resembled the delinquency rates of borrowers with credit scores 25 points lower before the pandemic. Michele Raneri, the vice president and head of US research and consulting at TransUnion, emphasized the importance of lenders taking a comprehensive approach to assessing credit score migrators. By analyzing additional trended credit behaviors, lenders can better identify borrowers who are likely to maintain their improved credit positions and those who may perform more in line with their prior score levels. Raneri stated: “Credit scores continue to perform extremely well at their intended role of rank ordering borrower risk. That said, the temporary benefits brought on by pandemic-era government relief programs, and resulting consumer credit behaviors during that time, led to a rise in scores for many consumers, particularly those who previously had lower scores due to delinquent accounts and/or high credit utilization.” So what effect did a rising tide of credit scores have? While clients might have been pleased to see their numbers climb, as the saying goes, “a rising tide floats all boats” and a universal hike in credit scores means that, well, that increased score just ain’t what it used to be. TransUnion’s figures show that a 625 post pandemic is ‘worth’ a pre-pandemic 600 for bankcard and UPL. Looking at auto? 610 now is ‘worth’ a pre-COVID 600. They are edging closer to levels not seen for decades.
US mortgage rates rose last week to the highest since November, edging close to levels last seen more than two decades ago. The contract rate on a 30-year fixed mortgage increased 22 basis points to 7.07% in the week ended July 7, according to Mortgage Bankers Association data out Wednesday. The weekly jump during the period that included the Fourth of July holiday was also among the biggest since late last year. Treasuries sold off last week after a slew of reports showed the labor market, while cooling somewhat, remains largely resilient, bolstering bets that the Federal Reserve will resume raising interest rates this month. Wednesday’s release of the June consumer price index will likely solidify those expectations, meaning mortgage rates risk rising further along with other borrowing costs. The MBA’s index of refinancing applications declined a seasonally adjusted 1.3% from the prior week. However, the home-purchase gauge rose, contributing to an advance in the overall measure of mortgage applications. The survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US. Several states even recorded annual home price losses. CoreLogic’s Home Price Index fell for the 12th consecutive month in May as rising mortgage rates continue to deter aspiring homebuyers. Single-family home price growth slowed to a 1.4% year-over-year pace in May, according to CoreLogic, but appreciation remained positive for the 136th straight month. The last time the index saw annual growth decline to less than 2% was 11 years ago. “After peaking in the spring of 2022, annual home price deceleration continued in May,” CoreLogic chief economist Selma Hepp said. “Despite slowing year-over-year price growth, the recent momentum in monthly price gains continues in the face of recent mortgage rate increases.”
The annual price growth of attached properties (2.7%) was 1.7 percentage points higher than that of detached properties (1%). CoreLogic’s HPI Forecast showed annual home price gains bouncing back to 4.5% by May 2024. “Nevertheless, following a cumulative increase of almost 4% in home prices between February and April of 2023, elevated mortgage rates and high home prices are putting pressure on potential buyers,” Hepp added. “These dynamics are cooling recent month-over-month home price growth, which began to taper and is returning to the pre-pandemic average, with a 0.9% increase from April to May.” Among states, Maine posted the highest annual home price gain in May (+7.2%), followed by New Jersey (+7.1%) and Indiana (+6.9%). Meanwhile, 11 states and one district recorded annual home price losses: Idaho (-8%), Washington (-7.5%), Nevada (-5.6%), Montana (-5.3%), Utah (-4.3%), Arizona (-4.2%), California (-3.5%), Oregon (-3.1%), Colorado (-2.7%), South Dakota (-1.3%), New York (-0.3%) and the District of Columbia (-0.1%). “Following recent trends, a significant number of Western states saw prices decline in May from the same time in 2022, reflecting out-migration from less-urban locations where people moved during the height of the pandemic and the significant loss of affordability due to those resulting home price surges,” CoreLogic explained in its report. “Northeastern states and Southeastern metro areas continue to see larger home price gains compared with other areas of the country, due to both workers slowly moving back to job centers in some areas of the country and settling in relatively affordable places in others.” |
|