Rising rates and sparse inventories continue to hamper the mortgage market. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, decreased 3.7 percent on a seasonally adjusted basis during the week ended May 26 and was down 5.0 percent on an unadjusted basis. It was the third straight week of slowing activity. The Refinance Index decreased 7 percent from the previous week and was 45 percent lower than the same week in 2022. The refinance share of mortgage activity decreased to 26.7 percent of total applications from 27.4 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index was down 3 percent compared to the prior week and 4 percent before adjustment. The index was 31 percent lower than the same week one year ago. [purchaseappschart] “Inflation is still running too high, and recent economic data is beginning to convince investors that the Federal Reserve will not be cutting rates anytime soon. Mortgage rates for conforming balance 30-year loans were being quoted above 7 percent by some lenders last week, and the weekly average at 6.9 percent reached the highest level since last November,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “ Application volumes for both purchase and refinance loans decreased last week due to these higher rates. While refinance demand is almost entirely driven by the level of rates, purchase volume continues to be constrained by the lack of homes on the market.”
One of the major home price indices showed a continued increase in national home prices in March and less waffling in some local markets. A second index, the Federal Housing Finance Agency’s (FHFA’) Housing Price Index (HPI) lengthened its string of quarterly price gains that stretches back to the first quarter of 2012. The S&P CoreLogic Case-Shiller U.S. National Home Price Index which covers all nine U.S. census divisions, reported a 0.7 percent annual gain in March, down from 2.1 percent in the previous month. On a monthly basis, that index rose 1.3 percent on a non-seasonally adjusted (NSA) basis and 0.4 percent after (SA) adjustment. Selma Hepp. CoreLogic Chief Economist credited the 0.7 percent annual increase in the National Index to the spring home buying season and a stronger return to the market of buyers than sellers. “[This] created another competitive market environment and one in which the very meager inventory of existing homes is putting buyers in a position of having to pay over the asking price and as a result driving early spring price gains well beyond what is traditionally seen during this period. But, monthly gains, up 1.3 percent from February, are almost double the increase seen between the two months and suggest housing market competition heated up again in early spring.” The 10-City Composite Index fell 0.8 percent after an annual increase of 0.5 percent in February but posted monthly gains of 1.6 percent NSA and 0.5 percent SA. The 20-City Composite dipped 1.1 percent compared to March 2022 while rising 1.5 percent and 0.5 percent for the month on NSA and SA bases, respectively.
The number of contracts to purchase pre-owned homes was unchanged in April. The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI), a forward-looking indicator of existing home sales, remained at the March level of 78.9. The index had seen some improvement over the first three months of the year but is now down 20.3 percent on an annual basis. [pendinghomesdata] NAR Chief Economist Lawrence Yun attributed the lackluster sales during what is usually residential real estate’s most active season is due in part to ongoing inventory restraints. He added, “Affordability challenges certainly remain and continue to hold back contract signings, but a sizeable increase in housing inventory will be critical to get more Americans moving. ” While three of the four major regions saw an uptick in new sales contracts, those changes were negated by a sizeable decline in the fourth. The PHSI in the Northeast fell 11.3 percent from March to 59.1 and was 21.8 percent lower than the prior April. The Midwest’s index improved 3.6 percent to 78.4 which was down 21.4 percent on an annual basis. Pending sales in the South rose 0.1 percent to 99.6 in April while sinking by 16.7 percent year-over-year. A 4.7 percent increase in the West took that PHSI to 62.2, a 26.0 percent decline from April 2022. The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes which are usually finalized within one or two months. The PHSI was benchmarked at 100 in 2001, a number equal to the average level of contract activity during that year.
The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, decreased 4.6 percent on a seasonally adjusted basis during the week ended May 19 and was 5 percent lower than the previous week on an unadjusted basis. It was the second consecutive weekly decline. The Refinance Index was down 5 percent and was 44 percent lower than the same week one year ago. The refinance share of applications was unchanged at 27.4 percent. [refiappschart] The seasonally adjusted Purchase Index fell 4 percent . The unadjusted version was 5 percent lower week-over-week and 30 percent lower on an annual basis. [purchaseappschart] “ Mortgage applications declined almost five percent last week as borrowers remained sensitive to higher rates . The 30-year fixed rate increased to 6.69 percent, the highest level since March,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Since rates have been so volatile and for-sale inventory still scarce, we have yet to see sustained growth in purchase applications. Refinance activity remains limited, with the refinance index falling to its lowest level in two months and more than 40 percent below last year’s pace.” Kan added, “Investors remained attuned to the uncertainty around the U.S. debt ceiling and communication from several Federal Reserve officials last week, which sent Treasury yields higher, along with mortgage rates. Economic data released over the past week have also pointed to a still-resilient economy. The housing market received positive data on new residential construction – which is seen as a key solution to the lack of housing inventory.”
Existing home sales account for the lion's share of all home sales in the U.S. Unlike "New Home Sales," this data series tracks previously sold homes. The massive rate spike in 2022 (and possibly the compounding of affordability issues due to excessive price growth) caused a sharp drop to long term lows by the end of that year. A nice, little bounce ensued to start 2023, but it's increasingly proving to be short-lived. The sales outlook is challenging due to an obscene lack of inventory. It may be slightly positive in year-over-year terms (blue line in the chart below from Calculated Risk), but still near super long term lows in outright terms (red line). Tight inventory is keeping prices higher. Combine that with stubbornly high rates and it's easy to blame "affordability" as one of the key reasons for the sales staying low. Other highlights from today's data: Median prices are down 1.7% from last year (388k vs 395.5k) Average days on market = 22 down from 29 First time buyers = 29% of market, up from 28% All-Cash buyers 28% up from 27% Investor share steady at 17%
The April Residential Construction Report from the U.S. Census Bureau and the Department of Housing and Urban Development shows mixed results in April. Permits fell off slightly from March levels and housing starts showed some improvement. Construction permits were issued at a seasonally adjusted annual rate of 1.416 million units. This is 1.5 percent fewer than the 1.437 million units permitted in March. Single-family permits rose 3.1 percent to 855,000 units and multifamily permits fell 9.7 percent to a rate of 502,000 units Permitting overall was down 21.1 percent from the 1.795 million level in April 2022 and those issued for single-family homes and multifamily units were down 21.2 percent and 23.0 percent respectively. Any improvement in housing starts was blurred by a substantial revision to the March numbers. Originally reported at an annual rate of 1.420 million units, an 0.8 percent increase, the rate of starts was downgraded to 1.371 million in today’s report. This accounted for the 2.2 percent gain in April to 1.401 million, the highest rate thus far in 2023. A similar revision to single-family starts (861,000 units became 833,000) made the 846,000-unit rate in April a gain of 1.6 percent. Multifamily starts jumped 5.2 percent to 542,000 units. Starts were down 22.3 percent from a year earlier, single-family starts lagged by 28.1 percent, and multifamily starts were 11.7 percent lower. [housingchartall]
The volume of mortgage applications, which had risen by more than 6 percent the prior week lost nearly all those gains during the week ended May 12. The Mortgage Bankers Association said its Market Composite Index decreased 5.7 percent on a seasonally adjusted basis from one week earlier and 6 percent on an unadjusted basis. The Refinance Index decreased 8 percent from the previous week and was 43 percent lower than the same week one year ago. Refinancing applications accounted for 27.4 percent of the total compared to 28.0 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index was 4.8 percent lower than the previous week and 5 percent lower on an unadjusted basis. Purchase applications were down 26 percent year-over-year. [purchaseappschart] “Mortgage rates increased last week even as Treasury yields were essentially flat, with the spread between the two rates widening to 310 basis points,” Joel Kan, MBA’s Vice President and Deputy Chief Economist said. “Mortgage application activity slowed, as most mortgage rates in the survey increased, with the 30-year fixed rate jumping nine basis points to its highest level in two months at 6.57 percent.” “Purchase applications decreased 5 percent to its slowest pace in a month, as buyers remain wary of this rate volatility, but also as for-sale inventory in many parts of the country remains scarce. Kan added, “Refinance applications accounted for 27 percent of all applications and dropped almost 8 percent last week. Most borrowers have lower rates on their mortgages, and those who are in the market are extremely rate sensitive. ”
Home builders’ attitudes about the market for newly constructed homes continued to improve in May, partially due to the lack of available pre-owned homes for sale. The National Association of Home Builders (NAHB) said the NAHB/Wells Fargo Housing Market Index which measures builder confidence jumped 5 points to 50, the fifth straight month the index has risen. It was also the first time the index has reached the midpoint of the index since July 2022. NAHB’s chief economist Robert Dietz said “New home construction is taking on an increased role in the marketplace because many homeowners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level. In March, 33 percent of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7 percent average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.” While optimism is rising, builders remain cautious in the face of ongoing industry challenges. In addition to shortages of building materials – Dietz specifically cited transformers – tightened conditions for construction and development loans are also hampering builders. Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of both current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate the traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
The volume of mortgage applications increased last week for both home purchases and refinancing. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that volume, increased 6.3 percent on a seasonally adjusted basis and was 7 percent higher on an unadjusted basis compared with the previous week. The Refinance Index increased rose by 10 percent but remains 44 percent lower than the same week one year ago. The refinance share of mortgage activity increased to 28.0 percent of total applications from 27.2 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index was up 5 percent. Before adjustment that index was 5.3 percent higher for the week, lagging its level a year earlier by 32 percent. [purchaseappschart] Joel Kan, MBA’s Vice President and Deputy Chief Economist said, “Mortgage applications responded positively to a drop in rates last week, as the Fed signaled a potential pause at the current level for the federal funds rate in anticipation of inflation slowing and tightening financial conditions that will slow economic and job growth. Mortgage rates for all surveyed loan types decreased over the week with the 30-year fixed rate at 6.48 percent. “Purchase applications increased 5 percent last week but were still more than 30 percent below last year’s level. Lower rates from week to week have helped buyers in the market,” Kan said, “but limited for-sale inventory remains a challenge for many homebuyers. Refinance activity jumped 10 percent to its highest levels since September 2022, although there is only a small pool of borrowers who can benefit from refinancing with rates at these levels.”
While home prices continue to fall on an annual basis, new data from Black Knight indicates that the trend may not continue beyond the short term. The company’s March Mortgage Monitor shows its seasonally adjusted Home Price Index (HPI) rose 0.45 percent in March (the largest increase since last May) and was up 1.38 percent before adjustment. The latter number is roughly on par with the 10-year March average of 1.43 percent, typically the strongest monthly uptick each year. Further, revisions to the January and February HPI numbers show monthly gains of 0.13 percent and 0.43 percent making March the third consecutive month of gains. The company warns that these monthly increases would annualize to gains of more than 10 percent and make it important to watch for further heating in coming months. Black Knight’s Vice President for Research Strategy, Andy Walden, says, “Despite the home price strengthening of these past couple of months, the backward-looking annual growth rate continued to cool as the influence of the red-hot spring 2022 market fades in the rearview mirror. Prices are now up just 1.0 percent year over year, with the annual growth rate on track to fall to roughly 0 percent by April .” That annual metric has been falling by 1.3-1.4 percent each month since the start of 2023. The only markets in the top 50 by population where seasonally adjusted prices are still shrinking are Austin, Salt Lake City, and San Antonio. Phoenix and Dallas were effectively flat month-over-month. The largest price gains have occurred in the Midwest and Northeast.