First thing's first, mortgage applications increased last week, both for purchases and refinances! It was the first improvement for refi demand since mid September, when rates were well into their lowest levels in more than 2 years. Top tier conventional 30yr fixed rates were being quoted at around 6% at the time, but moved rapidly up to 7%+ in the first 3 weeks of October. The resulting drop in refi demand was as logical as it was unfortunate, and it didn't really let up until 2 weeks ago. Since then, last week saw only a microscopic decrease which, in turn, paved the way for this week's microscopic increase. In the bigger picture, the refinance index remains in the lowest territory in decades. The Purchase Index is actually in a similar boat. In fact, we'd need to go even deeper into the past to see demand at current levels. The key difference is that there wasn't any interesting rate-driven bump in the past few months. Purchases apps simply ground to a halt by late 2023 and haven't done much since then. Other highlights from MBA's weekly application update: Refi share of total activity: 41%, up from 39.9 previously FHA share: 16.6% vs 16.0 previously VA share: 13.6% vs 13.3 previously Average contract rate (30yr fixed) 6.90 vs 6.86 Orig/Points up to 0.7 from 0.6 Jumbo rates were 0.13% higher than conventional and FHA rates .22% lower
The most common interval for scheduled economic data is "monthly." That means that things like inflation, sentiment, job counts, unemployment, retail sales, and many other economic metrics are updated and released every month, even when nothing very interesting is happening. On that note, there are several regularly scheduled housing related reports. This month's installment of New Residential Construction is today's example and, as you may have guessed, nothing very interesting is happening. At a glance details: Housing Starts (1st phase of actual construction) 1.311 million annual pace vs 1.33m forecast, 1.353m previously Building Permits 1.416m vs 1.430m forecast, 1.425m previously Neither measurement stands out on a longer term chart. Both have dialed back from the long-term highs seen between late 2020 and early 2022, but both remain in strong territory relative to 2019. This is the first way to view the slowdown in construction. The other way to view the slowdown is to focus solely on the slowdown in greater detail and attempt to connect it to another variable. That ends up being fairly easy if we merely consider the massive rate spike that coincided with the rapid contraction in building permits. In not so many words, construction metrics have been bouncing around their current levels ever since mortgage rates spiked to the 6-8% range. This isn't to say that interest rates are the exclusive reason for the slowdown, but the rate spike coincides with other headwinds. Those include things like affordability, labor costs, machinery/material costs, and financing costs for builders.
Historically low interest rates may not have guaranteed historically high levels of housing activity, but exceptionally high rates have definitely muted activity in a measurable way. We've cataloged this incessantly when it comes to refinance activity, but there's a correlation with home sales as well. The Housing Market Index (HMI) from the National Association of Homebuilders is just another way to see it. A de facto measurement of builder confidence/sentiment, the HMI had been flying high (all time highs, actually) shortly after the initial covid lockdowns. At the time, rates were at all-time lows and pent-up buying demand was being unleashed. Notably, that level of confidence was achieved despite housing starts only being about 2/3rds of their 2005 peak. Just as notable, as seen in the chart above, housing starts merely fell back to levels there were still higher than most of 2019 (a time when builder confidence was fairly close to all-time highs). So why would builder confidence swoon so much more than the activity level in the homebuilding sector would suggest? If the title and intro wasn't a giveaway, we'll make it clear: RATES! We could review a chart of rates compared to builder confidence, but that would look like an ink blot test with each line moving in opposite directions. Instead, the chart below uses the price of mortgage-backed-securities (MBS)--the bonds that dictate mortgage rates. The convenience of MBS in this context is that they'll move exactly like mortgage rates, but in the inverse (thus allowing us to more easily see the correlation between rate movement and the confidence swan dive).
It's not entirely clear if it's a can or the proverbial bucket. All we know is that mortgage applications have been kicking it. There's no great way to make the news interesting now that loan volume has done what anyone would have expected it to do, given the the rapid rise in rates over the past 6 weeks. Up until that point, there had been a noticeable uptick in refinance applications. That uptick has now been fully erased, although this week didn't decline nearly as much as the past several. In the bigger picture, that uptick wasn't anything special considering the starting point was as low as it's been in decades. To whatever extent refi apps have been historically muted, purchase applications have been reliably boring. Little changes on that front from week to week. The bigger picture is more interesting here, perhaps, as it shows the rapid shift from a longstanding trend of steady improvement to the new reality of exceptionally light purchase activity. Other highlights include: Refis accounted for 39.9% of the total, same as last week FHA accounted for 16.0%, up from 15.5% VA accounted for 13.3%, up from 12.5% Survey rates were up to 6.86 from 6.81 (30yr fixed) origination/points decreased to 0.6 from 0.68 FHA rates fell to 6.69 from 6.75 Jumbo rates rose to 7.00% from 6.98%
In today's weekly mortgage application survey from the MBA, the average 30yr fixed mortgage rate only rose from 6.73 to 6.81%. Meanwhile, daily average rates are already back over 7%. Any way you slice it, rates have been rising quickly and the fallout is completely unsurprising when it comes to refinance applications. For context, here's how the past year fits in the bigger picture: Refinance applications wax and wane with interest rates. The present environment is particularly restrained by the fact that so many people refinanced to such low rates in 2020-2022. At the moment, the only group of borrowers with a rate-based refinance incentive are those who purchased or refinanced in late 2023 when rates were near 8%. Purchase applications are much more even-keeled, but also not loving the current rate/affordability environment. Other highlights from this week's survey: Refinances accounted for 39.9% of total applications, down from 43.1% last week Average loan size fell below $300k FHA loans were 15.5% of total vs 16.4% last week VA loans were 12.5% of total vs 14.6% last week Conventional rates were 6.81 up from 6.73 vs jumbo rates at 6.98 (up from 6.77... a much bigger jump) ARM rates fell from 6.20 to 6.05, but upfront costs increased from 0.59 to 0.84.
Housing was chugging right along in early 2020, then covid happened. Housing experienced lots of unexpected volatility with the most important development being a huge increase in demand and prices... at first. Once rates began skyrocketing (relatively) and the frenzy began to subside, home sales numbers tanked to the weakest levels since the Great Financial Crisis by the end of 2022. They've been drifting and bouncing around near those same levels ever since. Bigger picture for context: In other words, this data series isn't worth too much discussion until it exits this holding pattern. For those determined to pick out potentially interesting anecdotes, feel free to sort through the following: Prices rose 3.0% year over year. It's the 15th straight month of increases Inventory has been growing faster than sales have been falling First time buyers accounted for 26% of total, matching the all-time low, but not a crazy drop from 2023's average of 32% All cash sales accounted for 30%, up from 26% last month.
The Mortgage Bankers Association (MBA) keeps track of applications for purchase and refi mortgages every week. Purchase apps are slower moving, less responsive to rates, and generally bouncing along the lowest levels in more than 20 years since the end of 2023. As such, we'll forget about them and move on to refi applications which have been far more interesting. This week's index fell to 672.6 from 734.6 last week. That's a big drop and it follows several other big drops, largely undoing the surge seen after the recent rate rally. But everything is relative. The chart above leaves us with the impression of a big crash following a big surge. If either move looks big, it's only because the baseline of the past 2 years has been the lowest, flattest pace seen in refi apps since 1999-2000. In the bigger picture, it was a barely noticeable uptick that has fallen back to the muted trend. The small uptick was unsurprising given that a vast majority of loans still had rates substantially lower than the lowest lows of the past few months. The correction back to lower levels is unsurprising given that rates have quickly surged back to the late July highs. As such, don't be surprised to see another reasonably big downtick next week. [thirtyyearmortgagerates]
While this technically signals some cooling in new construction potential, it wasn't much more of a drop than investors expected. Moreover, there has been a gradual cooling trend intact for more than 2 years. That's not as ominous as it sounds considering construction activity is still higher than it was in mid-2019. Housing starts, which measure groundbreakings for new home construction, actually came in just slightly higher than forecasts, barely declining month-over-month. Here too, there is a general cooling trend over the past few years, but a flatter trend over the past few months. Housing completions are a different story. They never experienced the same correction as starts and permits. They may have dropped from last month's high (highest level since 2007), but completions have been in a decisive uptrend since the middle of 2023 and a broad uptrend since 2011. Here's the bigger-picture context for construction:
Interest rates continued their slow decline last week while application volume is inching up almost as slowly. The Mortgage Bankers Association (MBA) reports a 1.6 percent increase in its seasonally adjusted Market Composite Index , a measure of mortgage loan application volume. On an unadjusted basis, the Index gained 0.2 percent over the prior week. Applications for home purchase financing took the lead, rising 3.0 percent on a seasonally adjusted basis and was up 1.0 percent before adjustment. The Purchase Index has now narrowed what was once a double-digit deficit to a -4.0 percent year-over-year gap. [purchaseappschart] The Refinance Index decreased 0.3 percent from the previous week and was 94 percent higher than the same week one year ago. Refinance applications made up 46.4 percent of the total, down from 46.6 percent the previous week. [refiappschart] “Most mortgage rates moved lower last week, with the 30-year fixed rate edging down slightly to 6.43 percent. Purchase applications increased more than 3 percent over the week and are inching closer to last year’s levels, with government purchase applications leading the increase,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “ Refinance applications were slightly down but continued to show strong annual gains as borrowers with higher rates have been refinancing to lower their monthly payments. Similar to purchase activity, refinance activity has picked up across the various loan types.”
Home sale numbers continue to retreat and in July the National Association of Realtors’® (NAR) Pending Home Sales Index (PHSI) fell to its lowest level…. Ever! Based on signed sales contracts for existing single-family houses, townhomes, condos, and cooperative apartments, the PHSI was down 5.5 percent from June to 70.2. This is 8.5 percent lower than the index for July 2023. [pendinghomesdata] The PBHSI is considered a leading indicator of home sales over the next one to two months. NAR cautions, however, that the amount of time between pending contracts and completed sales is not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues. The index was benchmarked at 100 in 2001, a year in which contract activity was considered average. “A sales recovery did not occur in midsummer,” said NAR Chief Economist Lawrence Yun. “The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election.” The index fell month-over-month in all four major regions. The Northeast slid 1.4 percent to 64.6 but did pull off a 2.4 percent gain from the previous July. In terms of home sales and prices, the New England region has performed relatively better than other regions in recent months ,” added Yun. “Current lower, falling mortgage rates will no doubt bring buyers into market.”
