Some people might like the idea of perpetual appreciation in the housing market, but others know that the industry was badly in need of a cool-down after values surged at an unprecedented pace post-pandemic. While the interest rate spike of 2022 wasn't entirely unprecedented, it was the fastest in decades and it left no doubt as to when home prices should embark on the much-needed correction. Two of the most official methods to track home price progress are the FHFA and Case Shiller Home Price Indices (HPIs), released concurrently once per month. January's update just came out this morning and the results are mixed. In annual terms, price appreciation continues to decline rapidly: Based on price trends over the past 12 months, it would be almost impossible for the annual pace to avoid dipping into negative territory in the coming months. That will be more a reflection of how high prices were a year ago than an absence of resilience in the present. In fact, the most recent trends in prices are more resilient than expected--especially when viewing the broader FHFA data set. FHFA's monthly HPI moved back into positive territory in January. Case Shiller was down 0.4%, but that's an improvement from December's drop of 0.5%. Both are well off their sharpest months of depreciation late last year. So yes... home prices are declining from last year and depending on the metro area, prices are still declining month-over-month to a small extent. But the declines were expected. The surprise is how shallow they've been and how quickly the resilience seems to be stepping in.
New home sales surprised everyone in January, surging by 7.5 percent to 670,000 units, the highest rate since March 2022. It was, however, only an illusion. That number has now been revised down to 633,000. The more modest number – which is still significantly higher than analysts had expected – means that the February number, a seasonally adjusted annual sales rate of 640,000 units, represents a monthly increase of 1.1 percent. This is down 19 percent from the 790,00-unit rate in February 2022. [newhomesall] The February number wasn’t a surprise. Even before the January revision, analysts had expected a pullback. Those polled by Econoday had a consensus estimate of 645,000 and Trading Economics came in at 650,000. On a non-adjusted basis, there were 59,000 homes sold in February, up from 55,000 in January. This brought the year-to-date numbers to 114,000 versus 141,000 units, respectively. At the end of February, there were an estimated 436,000 new homes available for sale. This is estimated to be an 8.2-month supply at the current sales pace. An estimated 75,000 of those homes are ready for occupancy. The median sales price of a home sold last month was $438,000 and the average was $498,700. A year earlier the respective prices were $427,400 and $522,200. [newhomeprices] Sales in the Northeast were down 40.0 percent from January and 55.3 percent from a year earlier. In the Midwest , the monthly decrease was 1.4 percent for an annual decline of 20.2 percent. Sales rose in both the South and West in February, growing by 3.0 percent and 8.1 percent, but were still lower year-over-year by 33.2 and 10.1 percent, respectively.
A second week of declining interest rates prompted another increase in mortgage activity last week, the third in as many weeks. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, gained 3.0 percent on both a seasonally adjusted and unadjusted basis. The Refinance Index was 5 percent higher than the week ended March 10 but was down by 68 percent from the same week in 2022. Refinancing accounted for 28.6 percent of applications, up from 28.2 percent a week earlier. [refiappschart] The seasonally adjusted Purchase Index increased 2 percent from one week earlier and was up 3 percent on an unadjusted basis. Purchase activity is 36 percent lower year-over-year. [purchaseappschart] "Treasury yields declined last week, driven by uncertainty over the health of the banking sector and worries about the broader impact on the economy. Mortgage rates declined for the second week in a row, with the 30-year fixed rate dropping to 6.48 percent, the lowest level in a month,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “ However, mortgage rates have not dropped as much as Treasury rates due to increased MBS market volatility. The spread between the 30-year fixed and 10-year Treasury remained wide at around 300 basis points, compared to a more typical spread of 180 basis points.” Other Highlights from MBA’s Weekly Mortgage Applications Survey
Existing home sales emerged, at least temporarily, out of a prolonged slump last month, and weren’t even shy about it. The National Association of Realtors® (NAR) said seasonally adjusted annual sales of preowned single-family houses, townhomes, condos, and cooperative apartments hit a seasonally adjusted annual rate of 4.58 million units compared to 4.0 million in January. The 14.5 percent monthly increase snapped a 12-month losing streak and was the largest one-month gain since the 22.4 percent increase in July 2020. [existinghomesdata] Single-family home sales performed even better, rising from 3.59 million units in January to 4.14 million, a 15.3 percent increase. Condo and coop sales grew by 30,000 units to 440,000. The February increases, however, fell far short of restoring sales to their levels a year earlier. Total sales remained down 22.6 percent compared to the 5.92 million unit rate in February 2022. Single-family sales were 21.4 percent and condo sales 32.3 percent lower on an annual basis. Analysts had expected sales to break out of their long slide, but they underestimated the degree to which it would happen. Trading Economics had an analyst consensus of 4.2 million, which would have been a 5 percent increase. Econoday predicted 4.17 million units. “Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines,” said NAR Chief Economist Lawrence Yun. “Moreover, we’re seeing stronger sales gains in areas where home prices are decreasing, and the local economies are adding jobs.”
It didn’t approach the levels of the “good old days” of 2020 and 2021, but construction activity did show signs of life last month. The U.S. Census Bureau and the Department of Housing and Urban Development reported that both housing permit activity and residential construction starts rose sharply in February after a fairly lackluster performance in January. As in January, however, credit was largely due to multifamily construction. Permits for residential housing units were issued at a seasonally adjusted annual rate of 1.524 million units in February compared to 1.339 million in January. This was an increase of 13.8 percent. The figure, however, remains 17.9 percent lower than the February 2022 rate of 1.857 million units. The rate of permitting for single-family houses rose 7.6 percent to 777,000 units while multifamily permits were 24.3 percent higher at 560,000 units. Single-family permits were down 35.5 percent year-over-year, but the multifamily rate gained 16.9 percent on an annual basis. Prior to adjustment, the report puts the number of permits issued in February at 109,500 of which 58,200 were for single-family houses. The respective January numbers were 101,000 and 53,100. Permitting rose in three of the four major regions in February. The Midwest’s rate increased 9.6 percent, the South’s rose 10.9 percent, and permitting shot up 30 percent in the West. The Northeast was the outlier with a 2.8 percent decline. All regions performed well below their February 2022 levels, with deficits ranging from 11.4 percent in the South to 42.5 percent in the Northeast.
Mortgage application volume increased for a second straight week as investors fled to the safety of government-guaranteed securities in the wake of three bank failures, and fears of depositor runs on several large regional banks. The Mortgage Bankers Association (MBA) said its Market Composite Index, a gauge of loan application volume, rose 6.3 percent on a seasonally adjusted basis during the week ended March 10. The index was 7 percent higher before adjustment. Joel Kan, MBA’s Vice President and Deputy Chief Economist said, “Treasury yields declined late last week, as market concerns over bank closures and the potential for broader ripple effects triggered a flight to safety in Treasury bonds. This decline pushed mortgage rates for all loan types lower, with the 30-year fixed rate decreasing to 6.71 percent, Home-purchase applications increased for the second straight week but remained almost 40 percent below last year’s pace. While lower rates should buoy housing demand, the financial market volatility may cause buyers to pause their decisions.” [purchaseappschart] The Refinance Index increased 5 percent from the previous week but was 74 percent lower than the same week one year ago. The refinance share of total applications decreased to 28.2 percent s from 28.9 percent the previous week. [refiappschart] Kan noted that, while refinance activity was still well below that of a year earlier when it held a 48 percent market share, and rates are still more than 2 points higher, the dip did bring some borrowers back, as evidenced by the 5 percent increase in refinance applications last week.
Mortgage credit availability fell to just short of its 2012 benchmark level in February. The Mortgage Bankers Association (MBA) said its Mortgage Credit Availability Index (MCAI) dropped 3.0 percent from its January level to a reading of 100.1. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. “ Mortgage credit availability decreased to its lowest level since January 2013 with all loan types seeing declines in availability over the month,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The conforming subindex decreased 4.3 percent to its lowest level in the survey, which goes back to 2011. This decline was driven by the ongoing trend of shrinking industry capacity as mortgage rates stayed significantly higher than a year ago. Additionally, in this volatile rate environment and potentially weakening economy, there was also a reduction in refinance programs offered for low credit score and high-LTV borrowers.” The MCAI has four component indices. The Conventional MCAI decreased 4.4 percent, while the Government MCAI was down 1.6 percent. The two component indices of the Conventional MCAI fell sharply, the decline in the Conforming MCAI noted by Kan and a 4.4 percent drop in the Jumbo index. The MCAI and its components are calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.). These metrics and underwriting criteria for over 95 lenders/investors are combined by MBA using data made available via a proprietary product from ICE Mortgage Technology. The resulting calculations are summary measures which indicate the availability of mortgage credit at a point in time. All indices were benchmarked on March 31, 2012.
The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, increased 7.4 percent on a seasonally adjusted basis compared to the previous week. On an unadjusted basis, the Index was up 9 percent. The Refinance Index rose 9 percent from the previous week and was 76 percent lower than the same week in 2022. The refinance share of mortgage activity increased to 28.9 percent of total applications from 28.7 percent. [refiappschart] The Purchase Index was 7 percent higher than the prior week on a seasonally adjusted basis and up 9 percent before adjustment. Purchase volume has declined 42 percent on an annual basis. [purchaseappschart] “Mortgage rates continued to increase last week. The 30-year fixed rate rose to 6.79 percent – the highest level since November 2022 and 270 basis points higher than a year ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Even with higher rates, there was an uptick in applications last week, but this was in comparison to two weeks of declines to very low levels, including a holiday week. Comparing the application indices from a year ago, purchase applications were still down 42 percent, and refinance activity was down 76 percent . Many borrowers are waiting on the sidelines for rates to come back down.” Other Highlights from MBA’s Weekly Mortgage Applications Survey
Black Knight releases a robust collection of mortgage/housing info each month via its Mortgage Monitor report. There are always more charts than we have time and room to post, but the charts are typically more interesting than whatever we have to say about them. So this month, let's try "more charts, fewer words." The report usually begins with delinquency stats. This isn't too interesting for the average originator, but if anyone asks you if the present housing market is like it was in 2008, you can confidently tell them it's quite the opposite in terms of delinquencies. "Prepayment" is also a term that doesn't mean much to the average mortgage originator, realtor, or consumer, but it is slightly more interesting than delinquency stats. Prepayment activity simply lets us know the reasons that loans are being paid off. Refinances and sales are the biggest contributors, as you'd expect. In this case, it's interesting to see how much of the heavy lifting is now down by home sales (pretty obvious, considering high rates' impact on refis). Perhaps even more interesting is the ramp up in "curtailments" (extra principal paid down). No surprises here. Purchase rate locks are at multi-year lows, but not too far below 2019. No surprises, for the most part, but some may be pleasantly surprised to see how steady the purchase market has been in terms of its contribution to overall origination numbers.
The volume of mortgage application activity for both refinancing and purchasing fell again last week. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of application volume, decreased 5.7 percent on a seasonally adjusted basis during the week ended February 24 and was 4 percent lower on an unadjusted basis. The Refinance Index was down 6 percent compared to the previous week and was 74 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 31.8 percent of total applications from 32.5 percent during the prior period. [refiappschart] The seasonally adjusted Purchase Index also suffered a 6 percent loss. The unadjusted version was down 3 percent week-over-week and 44 percent below its pace in the same week of 2022. [purchaseappschart] MBA spokesperson Joel Kan, vice president and chief economist, said, “The 30-year fixed rate increased to 6.71 percent last week, the highest rate since November 2022, which drove a 6 percent drop in applications. After a brief revival in application activity in January when mortgage rates dropped down to 6.2 percent, there has now been three straight weeks of declines in applications as mortgage rates have jumped 50 basis points over the past month. “Data on inflation, employment, and economic activity have signaled that inflation may not be cooling as quickly as anticipated, which continues to put upward pressure on rates.”