The volume of mortgage applications rose fractionally last week as rates edged down and applications for refinancing staged a small comeback. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that volume, increased 0.7 percent on a seasonally adjusted basis from one week earlier although it was down 20 percent from the prior week before adjustment. Applications for refinancing rose 2.0 percent week-over-week but were 80 percent below the level during the same week in 2021. The share of refinance applications ticked up from 29.7 percent of the total received the previous week to 30.3 percent. [refiappschart] The Purchase Index rose 0.1 percent compared to the prior week on an adjusted basis, but the unadjusted index fell 21 percent from a week earlier and 24 percent from the same week last year. [purchaseappschart] “Mortgage rates continue to experience large swings,” according to Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “After increasing 65 basis points during the past three weeks, the 30-year fixed rate declined 14 basis points last week to 5.84 percent. Rates are still significantly higher than they were a year ago, when the 30-year fixed rate was at 3.2 percent. The decline in mortgage rates led to a slight increase in refinancing, driven by an uptick in conventional loans. However, refinances are still 80 percent lower than a year ago and more than 60 percent below the historical average.”
It's one of the perennial "yeah buts" of the two largest and most widely-cited home price indices: there data is always about 2 months old by the time it comes out. This is the nature of home price reporting. It doesn't mean the data is bad or wrong--simply that it should be taken with a grain of salt given that interest rates and consumer sentiment took a decisive turn for the worse in both May and June. So if you've had your salt, here's the latest on home prices (in April) from both the FHFA and S&P Case-Shiller: FHFA Home Price Index +1.6% in April vs +1.6% in March +18.8% over 12 months in April vs +19.1% in March Case Shiller 20-City Price Index +1.8% in April vs +2.4% in March +21.2% over 12 months in April vs +21.1% in March There are a few ways to glean more timely data, but there are grains of salt here too. The following chart shows the percentage of active listings with price drops as of last week. It DOES NOT take into account the extent to which those homes may have been swinging for the fences in terms of list price. It also doesn't make any comment about the actual final sales price. It's highest and best use would be to suggest a general shift has taken place over the past 2 months (the same 2 months not counted by the big indices above) from a frothy real estate valuation landscape to "something else." In so many ways, it remains to be seen what "something else" ultimately looks like.
Pending Home Sales hit their most recent peak in October according to data reported in November, 2021 by the National Association of Realtors (NAR). In each of the subsequent 6 months, the NAR's Pending Home Sales Index declined until bottoming out in April at 99.2. Apart from the first 2 months of the pandemic, that was the lowest reading since 2014. Today's report (for the month of May) finally saw the index improve. While the gains barely registered, it was a much stronger showing than the median forecast which called for a 3.7% decline. Realtors remain cautious nonetheless. "Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition," said NAR Chief Economist Lawrence Yun. "Contract signings are down sizably from a year ago because of much higher mortgage rates." Yun blamed the general ongoing slump on the interest rate surge seen in 2022 so far, saying "choking off demand via higher mortgage rates is damaging to consumers and the economy. The better way to balance the market is through increased supply, which also helps the broader economy." Yun isn't wrong regarding a correlation between sharp rate spikes and pending sales. That said, experts were already questioning the sustainability of the housing market's trajectory--both in terms of prices and sales--well before the brunt of the recent rate spike. In other words, some sort of reckoning was inevitable. The meteoric nature of the rate spike simply made the timing obvious.
Last month's New Home Sales data from the Census Bureau was a real downer. It showed sharp declines in sales and a puzzlingly abrupt jump in inventory levels. One thing we used to point out about this data series was its immense margins of error. These could frequently result in major revisions that ended up painting completely different pictures compared to the initial release. For whatever reason, the size of those revisions remained stable enough in recent years that our coverage hasn't felt the need to point it out as regularly. Today doesn't necessarily bring that old school feeling back with a vengeance, but there was moderately big revision that brought last month's 591k reading up to 629k (for the month of April). The bigger news is the extent to which May's new home sales crushed forecasts. The median forecast saw sales coming in at 588k--a far cry from the actual reading of 696k. When taken in conjunction with last month's positive revision, it completely changes the tone of the long-term trend from one of "volatile reversal" to "gradually leveling off." Granted, big margins of error cut both ways and there's no guarantee today's 696k will remain intact by the time it's revised in a month. That said, it could go higher or lower. As always, keep in mind that the new home market is significantly smaller than the existing home market. That one still conveys more of a "volatile reversal," albeit to levels that are in line with pre-pandemic highs in 2016-2018.
Rates may be much higher in each of the past 3 months, but those with mortgages are making their payments with record-setting regularity. The overall delinquency rate fell 0.05% to 2.75% in May--the third consecutive record low. Serious delinquencies (90 days or more past due, but not in foreclosure) are still 45% higher than pre-pandemic levels, but fell sharply (7%) from last month. Foreclosure starts were down even more, falling 12% from April. Starts remain far below pre-pandemic levels, but active foreclosures increased modestly. One other statistic measured in the First Look data is "prepayment" activity. This refers to a loan being paid off for any reason (sale, refi, foreclosure, short sale, etc). With interest rates surging in 2022 and refi demand drying up to near record lows, it's no surprise to see a huge decline in prepayments, falling 11.1% in May and 59.1% year over year.
An increase in home purchase activity drove mortgage applications higher during the week ended June 17. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, rose 4.2 percent on a seasonally adjusted basis and was up 3.0 percent from the prior week on an unadjusted basis. The seasonally adjusted Purchase Index increased by 8.0 percent for the second consecutive week and was 6.0 percent higher before adjustment. Purchase activity continues to lag its performance year-over-year. It was 10 percent lower this week. [purchaseappschart] The Refinance Index, moved lower again, declining another 3 percent during the past week and was 77 percent lower than the same week one year ago. The refinance share of applications decreased to 29.7 percent from 31.7 percent the previous week. It appears, from MortgageNewsDaily records, to have been the first week since 2008 that the refinancing share failed to top 30 percent. [refiappschart] “Mortgage rates continued to surge last week, with the 30-year fixed mortgage rate jumping 33 basis points to 5.98 percent – the highest since November 2008 and the largest single-week increase since 2009 . All other loan types also increased by at least 20 basis points, influenced by the Federal Reserve’s 75-basis-point rate hike and commentary that more are coming to slow inflation,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Mortgage rates are now almost double what they were a year ago, leading to a 77 percent drop in refinance volume over the past 12 months.”
April, May, and June of 2020 were the only 3 months where Existing Home Sales suffered as a result of the pandemic. During those three months, the annual pace averaged roughly 4.4 million versus the last pre-pandemic reading of 5.4 million. That number jumped to nearly 6 million in July and didn't show any serious signs of contraction until February of 2022. What's up with the history lesson? The most important past data point in this case is that 5.4 million mark from March 2020 because today's report marks the first time that sales have returned to that level after skyrocketing for most of the past 2 years. In other words, pandemic housing boom notwithstanding, sales of existing homes are still in great shape. There are disclaimers, of course. Rates have risen sharply and the recent trend is not yet showing signs of bottoming. NAR's chief economist, Lawrence Yun, concurs, "Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year. Nonetheless, homes priced appropriately are selling quickly and inventory levels still need to rise substantially – almost doubling – to cool home price appreciation and provide more options for home buyers." Inventory is ahead of last year's pace, but at 2.6 vs 2.5 months, just barely! One thing that has not yet shown much sign of cooling is the surge in prices, which hit another record in this report. Be aware though, because this data isn't seasonally adjusted, prices will likely see their normal seasonal decline in the coming months.
As might have been expected considering the sixth consecutive drop in the National Association of Home Builders’ (NAHB’s) Housing Market Index released yesterday, residential builders pulled back in a big way last month. Both residential permitting and housing starts plummeted in June , although both so far are ahead of last year at the same date. The U.S. Census Bureau and the Department of Housing and Urban Development report that the seasonally adjusted annual rate of residential permitting dropped 7.0 percent in May to 1.695 million units compared to 1.823 million in April. The April rate is a revision from the 1.819 million units reported last month. The May 2022 number represents a 0.2 percent increase from the 1.691 permitting rate reported for May 2021. Single-family permitting was down 5.5 percent for the month and 7.9 percent lower on an annual basis at 1.048 million units. The annualized 592,000 permitting rate for multifamily units was down 10.0 percent and 19.8 percent from the two earlier periods. On an unadjusted basis there were 148,900 construction permits issued in May compared to 156,600 the prior month. There were 95,000 single-family homes authorized, down from 98,200 in April. During the first five months of the year 739,300 permits were issued, a 2.7 percent increase from the same period in 2021. Single family permits are down 2.5 percent while multifamily permits have risen 14.8 percent Housing starts fared worse. The annual rate dropped 14.4 percent to 1.549 million from 1.810 million in April. The latter, however, was a substantial upward revision from the original April estimate of 1.724 million. Starts were 3.5 percent lower than in May 2021.
Builders are increasingly nervous about the impact inflation and higher interest rates might have on prospective home buyers in coming months. The National Association of Home Builders (NAHB) said on Wednesday that its Housing Market Index (HMI) which it co-sponsors with Wells Fargo, reflected this as it declined for the sixth straight month in June. The HMI, which measures new home builder confidence in the market for newly built single-family homes, fell 2 points month-over-month to 67. It was the lowest reading for the index since June 2020, at the height of the pandemic lockdown. Robert Dietz, NAHB’s chief economist said the six months of negative changes are a clear sign that the housing market is slowing. “The entry-level market has been particularly affected by declines for housing affordability and builders are adopting a more cautious stance as demand softens with higher mortgage rates,” he said. The HMI is derived from a monthly survey that NAHB has been conducting for more than 35 years. Builders are asked to give their perceptions of current single-family home sales and their expectations for sales over the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate 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.
Mortgage application volume increased during the week ended June 10 after four straight weeks of declines. However, the overall gains shown by data from the Mortgage Bankers Association’s (MBA’s) weekly Mortgage Applications Survey was only a resumption of application activity patterns two weeks earlier. The business week ended June 3 was shorted by the Memorial Day holiday. MBA’s Market Composite Index, a measure of loan application volume, increased 6.6 percent on a seasonally adjusted basis after declining 6a.5 percent the previous week. On an unadjusted basis, the Index increased 17 percent, identical to its decline the previous week. The Refinance Index increased 4 percent from the previous week but was 76 percent lower than the same week in 2021. The seasonally adjusted Purchase Index rose 8 percent from one week earlier and was up 18 percent on an unadjusted basis. The Index remains down 16 percent from the same week one year ago. The last time the Purchase Index rose year-over-year was in May 2021. [refiappschart] [purchaseappschart] According to Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, "Mortgage rates increased for all loan types, with the 30-year fixed rate last week jumping 25 basis points to 5.65 percent – the highest level since 2008. Mortgage rates followed Treasury yields up in response to higher-than-expected inflation and anticipation that the Federal Reserve will need to raise rates at a faster pace. Despite the increase in rates, application activity rebounded following the Memorial Day holiday week but remained 0.29 percent below pre-holiday levels. With mortgage rates well above 5 percent, refinance activity continues to run more than 70 percent lower than last year.”