Purchase Applications Grab Majority Share of Mortgage Market in July as Refinances Fade Away

Posted on August 22nd, 2013

There’s been a lot of fuss about the refinance market drying up lately, and we now know it’s not just noise.

Last month, purchase-money mortgages gobbled up the majority share of the overall mortgage market, according to the latest Origination Insight Report from Ellie Mae.

The company noted that purchases accounted for 53% of applications in July, up from 49% in June and 42% a year earlier.

During 2012, the purchase share averaged a paltry 38% as refinances took center stage, helped on by ridiculously low mortgage rates and the expansion of the successful HARP initiative.

The worst month for purchases in recent history occurred during January of this year, when they accounted for just 27% of the mortgage market.

Since then, they’ve steadily climbed higher into the traditional home buying season, while refinances have retreated amid higher rates.

Refinances Peaked in January with 73% Share

purchase share

What a difference half a year makes. Refinances snagged an astonishing 73% of the mortgage market in January, but since then have seen sequential declines just about every month.

The only bright spot for refis was HARP-related, with high loan-to-value loans (95%+) rising three percent from a month earlier.

However, market watchers expect the overall numbers to move in much the same direction for a while, with refinances eventually slipping to a sub-40% share in 2014.

Unfortunately, most homeowners have already taken advantage of the low rates, with only 55% of existing mortgages currently at above-market rates (not all stand to benefit from a refinance).

[When should you refinance a mortgage?]

Then there’s those who procrastinated and missed the boat, with many presumably considering adjustable-rate mortgages as an alternative.

That’s not just speculation – the ARM-share increased to 5.2% of closed loans in July, up from 4% in June and 2.1% back in January.

Meanwhile, the somewhat en vogue 15-year fixed is beginning to lose its luster, with only 15.5% of borrowers opting for a short-term fixed loan, down from 16.5% a month earlier and 16.9% at the start of the year.

This market shift is also obliterating the mortgage industry, with layoffs beginning to make the headlines seemingly every day.

The latest causalities come from top mortgage lender Wells Fargo, which announced another 2,323 job cuts nationwide, including 365 in Birmingham, 330 in offices around Orange County, CA, and another 292 in Phoenix.

These layoffs are on top of additional job cuts announced last month.

Many other banks have been slashing mortgage workforces as well, which is no surprise given the sharp drop-off in origination volume.

It’s so bad that it almost feels like 2007 all over again, with the bad news forcing me to work on my list of layoffs and closures much more these days.

Credit Is Easing in Mortgage Land

credit quality

Despite that, credit conditions seem to be easing for home loans. Last month, the average FICO score for a closed loan was 737, down from 742 a month earlier and 749 in January. The average FICO score for all of 2012 was a very high 748.

Additionally, only 75% of closed loans in July had FICO scores of 700 or higher, compared to 83% a year ago.

In other words, credit standards seem to be falling as mortgage lenders grapple with lower production numbers, whether that’s correlated or not.

For denied applications, the average FICO score was 702 last month, which probably wasn’t the sole reason the loan was declined.

Lastly, both LTVs and DTI ratios increased in July, signaling credit easing and/or a lower quality borrower. But it certainly helps now that both mortgage rates and home prices are much higher than they once were.

Of course, this shift also kind of reminds me of the previous crisis, though nowhere near that same level…yet.

Read more: A Lack of Qualified Buyers Could Hit the Real Estate Market

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

RedfinNow Temporarily Halts Offers as Housing Market Takes Turn for the Worse

Posted on March 18th, 2020

We’re now getting our first indication of how the coronavirus may affect the once booming housing market, thanks to a blog post from Redfin boss Glenn Kelman.

It’s not good news, as indicated by the title of this post.

RedfinNow Hits the Brakes

  • The real estate brokerage is no longer buying homes for cash
  • Unclear how long they will pause their iBuyer business
  • Doesn’t bode well for housing market sentiment
  • But understandable given the uncertainty surrounding coronavirus

First and foremost, the company’s iBuyer unit RedfinNow is halting offers it makes on homes, per a separate 8-K filing.

On the surface, the company isn’t interested in buying your home for cash anymore, at least not at the moment.

This doesn’t necessarily mean they think the housing market is going to tank, but it does seem to signal some uncertainty on their part.

So that’s a little bit unsettling, though perfectly understandable for a large, publicly-traded business to disclose that material event.

By the way, Redfin stock has fallen from around $33 per share a month ago to just over $10 today.

It fell nearly 25% on Wednesday as the coronavirus continues to ravage the economy.

The company did not indicate when they’d relaunch RedfinNow, but for now, it appears to be on hold.

Home Buying Demand Has Taken a Hit from Coronavirus

  • Home buying demand was up roughly 27% in both January and February compared to last year
  • Last week year-over-year growth fell to just 1%
  • And in the past few days it has turned negative
  • Probably a taste of what’s to come as social distancing and self-quarantines take effect

Now onto that post from Redfin CEO Glenn Kelman. He opens by stating that “home-buying demand took a big hit.”

By that, he means year-over-year growth dropped from nearly 27% in January and February to just 1% growth over the past week.

And in the past three days, there has been a contraction in home buyer demand.

In other words, the spring housing boom we were all waiting for, spurred on by those new all-time mortgage rates, is toast.

In short, we’re all basically quarantined in our own homes or apartments, so virtually nobody is even thinking about touring someone else’s house.

However, while Kelman said most open houses have been canceled, including all of Redfin’s own open houses, some real estate agents are still out there trying.

He mentioned one showing in Hoboken, New Jersey, where Redfin agent Noah Goldberg said six groups of potential buyers were being staggered like a Disneyland ride.

Goldberg added that his activity was down by half now that the coronavirus is here in the United States, and not just some far away land.

Home Purchases Are Still Closing, But…

  • Some Redfin agents say it’s business as usual
  • But home purchases just days from funding will probably still go through
  • Need to worry about homes that just went pending and new listings
  • Might see fallout as outbreak worsens, and there may be disruptions as ancillary services close

That pessimism aside, a Redfin manager out of Jacksonville, FL said it was “business as usual,” with closings taking place all week.

Of course, those who are near the finish line probably have a much smaller likelihood of pulling out versus those just under contract, or those who have yet to find a home.

Meanwhile, a Washington D.C.-based listing agent said two of three listings that hit the market just last week were already pending.

Sadly, last week is a lot different than THIS week. So my expectation is for a lot of these positive outcomes to change pretty rapidly.

Some of those offers may also fall out of escrow depending on how bad things get.

Kelman added that the number of listings activated on the MLS over the past week was still up 0.5% year-over-year.

Once again, a caveat. Most of these listings debuted before the weekend, and a lot has changed in just a few days this week.

He was surprised to see an increase in new listings in some of the cities hardest-hit by the coronavirus, with volume up 9% YoY in Seattle and 6% in the Bay Area.

There have also been rumors that with courthouses closed, sales wouldn’t be able to be recorded. But Kelman notes that most counties nationwide support electronic recordings.

Redfin Has Stopped Buying Ads

  • Company halted both mass-media advertising and digital ad buys
  • Will continue to advertise on behalf of their home sellers
  • Appears they are uncertain about direction of the housing market
  • If everyday Americans feel the same way it could be a rough year for the real estate industry

In one final ominous sign for the housing market, Kelman said his company has stopped purchasing advertising to promote its brokerage.

The only ads they’re buying are custom digital campaigns they create for each listing customer, so they’re still supporting their home sellers.

Redfin ceased the purchase of mass-media advertising on March 9th, and halted digital ad buys a week later.

In other words, they don’t sound very bullish on the housing market right now. However, they might just be taking a wait-and-see approach to see how everything pans out, instead of throwing caution to the wind.

Unfortunately, if prospective home buyers do the same thing, it’s going to be awfully hard to sell a home right now.

The silver lining, if there is one, is that mortgage lenders can better manage their refinance pipeline instead of worrying about home purchase applications.

And maybe that will allow them to finally lower mortgage rates again once volume slows.

Source: thetruthaboutmortgage.com

Home Prices vs. COVID-19: Will They Go Up or Down?

Posted on May 7th, 2020

It’s time to take a look at how COVID-19 could impact home prices given the massive disruption to the local, state, national, and global economy.

On the one hand, inflation is expected due to all the government spending, which could lead to a price increase since real estate often acts as an inflation hedge.

Conversely, if tons of borrowers lose their homes due to unemployment, we could see properties flood the market. And when combined with fewer eligible buyers, it could lead to a supply glut.

Consider the Lack of Housing Supply and Mortgage Quality

  • The housing market has three great things working in its favor right now
  • Housing supply is low enough even if buyer demand wavers during this uncertain time
  • The quality of today’s mortgages is excellent any many homeowners have lots of equity
  • Mortgage rates are at record lows, which further increases home buyer appetite

First, let’s compare today’s housing market to the one in 2006. They really couldn’t be any different, both from an inventory standpoint and from a mortgage perspective.

Simply put, back then there were way too many homes being built, and not enough demand to meet that supply.

At the same time, banks and lenders were doling out home loans to anyone with a pulse, knowing they could quickly bundle the underlying mortgages and sell them to Wall Street shortly after origination.

Taken together, it was a recipe for disaster. Homeowners had massive mortgages they couldn’t truly afford that were often set to adjust higher just months after they took them out.

They also had no skin in the game, aka home equity, so there wasn’t much incentive to stick around and try in vain to keep a sinking ship afloat.

Today, Americans are sitting on the most home equity in history, and very little of it is being tapped thanks to tighter underwriting guidelines that have only become more restrictive since COVID-19 reared its ugly head.

Meanwhile, there’s an inventory shortage that has likely only worsened as fewer existing homeowners list their properties, and mortgage rates are at record lows.

In short, homeowners today have tons of equity and historically cheap mortgages, and home buyers have fewer properties to choose from and ridiculously low mortgage rates at their disposal.

The Great Unknown Ahead

  • Ultimately nobody knows what the future holds or how we recover post-coronavirus
  • 1 in 5 Americans have already filed for first-time unemployment benefits since mid-March
  • That will likely worsen over time and lead to increased mortgage forbearance requests
  • The big question – is this income hit temporary for most homeowners or permanent?

Now it’s wonderful that today’s mortgages are mostly pristine, and that homeowners have tons of equity to serve as a cushion if forced to sell.

But we’re living in a very fluid and strange environment at the moment that could change in no time at all.

For example, one in five Americans have filed for unemployment since mid-March, and that’s likely only going to get worse.

So even if many of these homeowners had super affordable mortgages, a lack of income and the inability to tap their equity could put them at risk quickly.

To counter that we’ve got the mortgage forbearance offered via the CARES Act, which is great for struggling homeowners but only lasts for 12 months.

What happens after that? At best, if they simply have to resume making normal payments, there’s a decent chance not everyone will be re-employed and able to do so.

The world has changed and may not go back to “normal,” and thus not everyone will have the realistic ability to return to making monthly mortgage payments.

Even if they’re offered a loan modification to lower their payment, it still might not be enough if they can’t find work.

The same goes for investment properties such as those offered by Airbnb and other short-term vacation companies, or kiddie condos owned by parents in college towns, which might remain vacant.

If this is the case, we could see a flood of new properties hit the market similar to what we saw back in 2008, 2009, etc.

That’s where these two very different housing markets could begin to intersect. The good news is we didn’t have a supply glut before COVID-19 came around.

Back in 2006, we had a massive oversupply that was further exacerbated by a financial bubble, so it was a one-two punch.

Additionally, one could argue that both homeowners and lenders were to blame for what happened back then.

Sure, lenders offered high-risk products, but borrowers happily pulled out billions in cash out along the way to spend on who knows what.

Today, you can’t really blame a homeowner who is unable to make their mortgage payment due to the coronavirus epidemic.

And it’d look really bad to foreclose on this type of homeowner, which could limit the damage and keep inventory tight.

But here’s the thing – no one can sit here today and say they know what’s going to happen with COVID-19. And data models can’t forecast properly in this environment.

So really anything right now is a guess.

What Are We Seeing So Far in the Housing Market?

homebuyer demand

  • Home sellers mostly haven’t budged on listing prices
  • Prospective sellers are ready to go once stay-at-home orders are lifted
  • Amenities like big yards and home offices are becoming more important to buyers
  • Home buying demand is recovering and listing prices are up from a year ago

Everyone seems to want to call this event temporary – a moment in time that will magically fix itself once the economy opens up.

I don’t subscribe to that, as much as I wish it were true. You can’t simply erase what’s happened the past several months, nor what lies ahead in the aftermath.

Speaking of, are we even “after” yet, or is this still in the early innings. While that too can be debated all day long, again no one really knows.

But we can look at early impact to get some sort of a clue.

The MBA reported that seasonally adjusted home purchase applications increased 6% from a week earlier, with even bigger gains seen in California and New York.

The ever-cheerful National Association of Realtors reported that home sellers have not lowered their listing prices as a result of COVID-19.

In the latest week, 73% of Realtors said their clients did not reduce listing prices to attract home buyers.

That’s been pretty steady for the past few weeks since NAR began reporting on it.

Additionally, they said today that 77% of prospective sellers “are preparing to sell their homes following the end of stay-at-home orders.”

In other words, once this blows over it’s going to be real estate business as usual, sans discount!

Interestingly, buyer needs might have changed – they now want a big backyard to play in and grow their own food, along with a home office and possibly a home gym too.

The less is more thing may no longer be a hot trend, nor is urban living possibly as popular. The Burbs are back!

Over at Redfin, it’s also good news with nearly 53,000 homes hitting the market during the week ending April 24th, compared to just over 48,000 for the week ended April 13th.

Additionally, pending home sales have increased from less than 31,000 to more than 32,500 during those same periods.

Despite the rise in new listings, there were less than 700,000 homes for sale in Redfin markets nationwide, the lowest amount the real estate brokerage has seen during the past five years.

That might explain why the median listing price was $308,000 for the week ending April 24th, up 1% compared to the same period last year.

Home buyer demand has also begun to climb back after taking a hit in March, a sign potential buyers are unfazed and ready to move forward.

A Home Price Projection from Zillow

Zillow scenarios

  • Company sees home prices falling just 2-3% by the end of 2020
  • With a recovery in home prices throughout 2021
  • Their pessimistic model sees a 3-4% decline in prices and no recovery in 2021
  • Home sales are expected to fall 50-60% in all their models before rebounding at varying speeds

Now let’s take a look at a projection from Zillow, the creator of the Zestimate that should know a thing or two about home prices.

They have forecast a mere 2-3% drop in home prices through the end of 2020, which will be followed by a recovery in prices throughout 2021.

That means a small drop this year that is recovered next year could mean no material change for home prices due to COVID-19.

So they appear to be on the “this is temporary” wagon. Prior to the coronavirus outbreak, home prices were expected to rise 3.3% on average in 2020, and 2.7% in 2021, per the Zillow Home Price Expectations Survey, which includes a panel of more than 100 economists and experts.

But again, their “proprietary macroeconomic and housing data” might not be well-equipped to take into account a pandemic.

They have three different scenarios for home prices, including an optimistic, medium, and pessimistic outlook.

At best, they drop only 1-2% this year, at worse they fall 3-4% and “remain depressed through 2021.”

In all cases, home sales are expected to take a big hit of 50-60%, though when they recover varies.

That might hurt real estate agents and mortgage lenders if mortgage refinance volume begins to waver.

The good news, despite all the horrible news, is that homeowners are a lot better off today than they were in 2006, which means more of them should be able to get through this crisis without losing their home.

And that should bode well for home prices.

Source: thetruthaboutmortgage.com

Mortgage Lenders Now Providing Payment Relief Due to Coronavirus

Last updated on December 28th, 2020

I will update this post as new information is made available, but we’re starting to see mortgage relief packages rolled out by all the major housing agencies.

Whether the government launches some sort of HAMP-esque program that goes beyond the usual loss mitigation options remains to be seen.

That may be dictated by how bad the coronavirus outbreak gets, and its eventual effect on the housing market.

Coronavirus Relief for FHA Loans

The Department of Housing and Urban Development (HUD), which oversees the FHA home loan program, has halted foreclosures and evictions for the next 60 days as a result of COVID-19.

This applies to the initiation of a foreclosure and the completion of any foreclosures in process.

Additionally, lenders must cease all evictions of individuals living in an FHA-insured single-family property.

This guidance applies to both forward FHA loans and reverse mortgages, known as Home Equity Conversion Mortgages (HECM).

With regard to mortgage payment relief, the FHA has called on loan servicers to offer its suite of loss mitigation options, including short and long-term forbearance options, along with mortgage loan modifications.

Coronavirus Relief for VA Loans

The VA has released a circular titled, “Foreclosure Moratorium for Borrowers Affected by COVID19,” which strongly encourages a 60-day halt on foreclosures and evictions beginning March 18th, 2020.

They have also encouraged holders of VA guaranteed home loans to extend forbearance to borrowers affected by COVID-19.

Loan servicers have been to told to evaluate the VA Loss Mitigation options outlined in Chapter 5 of the VA Servicer Handbook M26-4.

This may include the reapplication of prepayments to cure or prevent a loan default, and allows the terms of any guaranteed loan to be modified without the prior approval of the VA, assuming conditions in the regulation are met.

USDA Rural Development Response

First off, USDA Rural Development will continue to provide USDA home loans and grants to those in rural communities nationwide.

Additionally, they have granted authority to lenders that participate in their Single-Family Housing Guaranteed program to work with borrowers having difficulty making payments.

Lastly, RD will issue guidance to its Single-Family Housing Direct borrowers to ensure those in need of payment assistance are adequately reached.

Fannie Mae and Freddie Mac Assistance Options

The pair, which back the vast majority of home loans, have both suspended foreclosure sales and evictions for the next 60 days.

Both Fannie Mae and Freddie Mac will provide payment forbearance for up to 12 months.

Fannie Mae says it will either reduce or suspend borrower’s mortgage payments during that time.

Neither will assess penalties or late fees against borrowers.

Freddie Mac says forbearance is an option regardless of occupancy, meaning primary residences, second homes, and investment properties are all eligible for relief.

Additionally, both are suspending the reporting of delinquencies related to any forbearance, repayment, or trial plans to the credit bureaus.

So homeowners won’t have to worry about getting dinged by the credit bureaus as they seek assistance.

Boston Mortgage Relief

The Mayor of Boston, Marty Walsh, has inked a deal with 12 banks and mortgage lenders that allows homeowners to defer mortgage payments for at least three months.

The institutions in question include Bank of America, Boston Private, Cambridge Trust Company, Century Bank, Citizens Bank, City of Boston Credit Union, Dedham Savings Bank, Eastern Bank, Mortgage Network, Inc., PrimeLending, Salem Five Bank, and Santander Bank.

The participating lenders will extend loan deferment if needed, and have also agreed to a collective goal of approving deferments within 21 days of application.

Only “essential paperwork” is needed from the borrower, and it will not be reported to the credit bureaus as being a late, nor will they will charge late fees.

Most importantly, once the deferment period comes to an end, the homeowner will not be required to pay the total deferment/forbearance amount in a lump sum.

Connecticut COVID-19 Mortgage Assistance

Connecticut Governor Ned Lamont has announced that his administration has reached an agreement with 50+ credit unions and banks to offer mortgage relief to homeowners affected by the COVID-19 pandemic.

Like other states, there will be a 90-day grace period on mortgage payments and no foreclosures/evictions for 60 days.

Additionally, homeowners will get relief from any fees and charges for 90 days, and won’t suffer any negative credit score impact.

Nevada Mortgage Relief Measures

  • Moratorium on evictions and foreclosures for duration of the State of Emergency
  • 90-day grace period on mortgage payments
  • Banks have agreed to work directly with customers to ensure no one pays a giant lump sum payment to get back on track

Governor Sisolak and State Treasurer Zach Conine have announced relief options for homeowners in the state of Nevada.

They say “a vast majority of lending institutions are offering homeowners facing financial hardships due to COVID-19.”

This includes a a 90-day grace period on mortgage payments, and more importantly, have agreed to “ensure that no one is hit with a giant lump sum payment if they need to stop making payments for a couple of months.”

“In many cases, these payments can instead be added onto the back end of a loan, so people can get back to work and get back on their feet.”

New Jersey Mortgage Grace Period

New Jersey Governor Phil Murphy announced mortgage payment forbearance of up to 90 days for borrowers economically impacted by COVID-19.

  • 90-day grace period for mortgage payments
  • No negative credit impact for receiving assistance
  • No mortgage-related fees or charges for at least 90 days
  • Moratorium on foreclosure sales and evictions for at least 60 days

New York State Mortgage Assistance

In New York State, Governor Cuomo signed an executive order that provides mortgage relief, including a 90-day payment holiday to homeowners impacted by the novel coronavirus.

Here are the details:

  • Postpones or suspends any foreclosures
  • Waives mortgage payments for 90-days based on financial hardship
  • No negative reporting (late payments) to credit bureaus
  • Grace period for loan modifications
  • No late payment fees or online payment fees

Apparently, any missed monthly mortgage payments are being tacked on to the back of the loan. It’s unclear if this will effectively freeze the mortgage or result in a balloon payment.

Worldwide Response

Last week, Italy’s deputy economy minister announced that mortgage payments would be suspended across the entire country in light of the coronavirus (COVID-19) outbreak.

While plenty of Italian homeowners might not actually contract the virus, the economic implications of a countrywide shutdown could affect their ability to make timely housing payments.

For example, with Italy effectively coming to a standstill, many homeowners may not be able to work until the lockdown is lifted.

It’s unclear who will be paid during this time. There are also longer-term layoffs to consider if businesses are permanently affected.

In the UK, similar measures are already being extended by individual banks, including TSB Bank, which is offering a “repayment holiday for up to two months.”

My understanding is this gives homeowners a two-month break before they must resume making timely monthly mortgage payments.

Similar moratoriums are being offered to mortgage borrowers by other British banks, and they’re also making it easier for customers to get access to their cash if need be.

U.S. Mortgage Lenders May Not Be Far Behind

  • Italian banks have already suspended mortgage payments nationwide
  • UK banks are now offering mortgage holidays to affected customers
  • Matter of time before U.S. banks and lenders extend similar assistance
  • If you need help paying your mortgage, contact your loan servicer and look out for news bulletins

While no major coronavirus restrictions have made it to the United States just yet, at least beyond some universities and other private institutions, there’s a chance we could experience a similar clampdown soon.

Really, it sounds more like a matter of when than if, despite no mandatory freedom of movement likely.

This is known as “social distancing,” designed to limit human-to-human contact and stop the spread of the fast-moving COVID-19.

Assuming that happens, there’s a good chance mortgage lenders will step in and offer temporarily relief for those affected.

Again, while the virus itself may not directly affect an individual homeowner’s health, disruptions in multiple industries could lead to layoffs or the inability to perform job duties.

Generally, when a natural disaster occurs, Fannie Mae, Freddie Mac, and HUD offer some level of assistance and/or guidance to loan servicers to ensure borrowers can get back on their feet, or avoid falling behind to begin with.

This may involve the suspension or reduction of mortgage payments for 90 days up to six months, depending on the circumstances.

They may also suspend eviction lock-outs on real estate owned (REO) inventory to avoid displacing tenants during what could be a sensitive time.

Tip: If you need assistance paying your mortgage at this time, be sure to keep an eye on the FHFA or HUD websites, along with Fannie Mae and Freddie Mac’s, for any pertinent announcements.

Homeowners Are Helping Themselves to Lower Mortgage Rates

  • Record low interest rates lead to 55.4% increase in weekly mortgage applications, per MBA
  • Refinance share surged to 76.5% of total loan volume from 66.2% a week earlier
  • 2020 mortgage origination forecast revised up to $2.61 trillion
  • Industry group now expects refis to account for $1.23 trillion in volume, up 36.7% from earlier estimates

In the meantime, homeowners seem to be helping themselves by taking advantage of the record low mortgage rates also on offer at the moment.

Instead of asking for a payment holiday, borrowers are lowering their mortgage rates in droves via a traditional mortgage refinance.

This morning, the MBA reported that home loan applications surged 55.4% from a week earlier as refis jumped 79% to their highest level since April 2009.

Home purchase applications also rose six percent from a week earlier, a good sign in an otherwise uncertain time.

That pushed the refinance share of mortgage activity to 76.5% of total applications from 66.2% a week earlier.

The record low interest rate environment prompted the MBA to revise its origination forecast, forecasting total mortgage volume of $2.61 trillion this year, a 20.3% increase from 2019’s volume ($2.17 trillion).

Additionally, they expect home refinance originations to double their earlier projections, surging 36.7% to around $1.23 trillion.

Despite the unknowns in this ever-evolving situation, home purchase originations are still slated to climb 8.3% this year to $1.38 trillion.

While this is generally good news for the mortgage industry, it’s probably wreaking havoc on loan servicers and mortgage investors who are seeing prepayment speeds go through the roof.

Additionally, it’s going to make it difficult for mortgage companies to get their staffing right if mortgage rates all of a sudden U-turn, and in any case, once the party comes to an end.

Read more: How soon can I refinance my mortgage?

Source: thetruthaboutmortgage.com

Pending Home Sales Fall in January as Inventory Constrains Buyers>

The numbers: The index of pending home sales fell 2.8% in January after four consecutive months of declines, the National Association of Realtors said Thursday. The index captures real-estate transactions where a contract was signed but the sale has not yet closed, making it an indicator of where existing-home sales will go in the months ahead.

The median forecast of economists polled by MarketWatch had called for a 0.5% decline in pending sales on a monthly basis.

“Pending home sales fell in January because there are simply not enough homes to match the demand on the market,” Lawrence Yun, the chief economist for the National Association of Realtors, said in the report. “That said, there has been an increase in permits and requests to build new homes.”

Compared to 2019, pending sales were up 13%, indicating that the housing market remains strong despite the weakness that has crept in during the winter months.

What happened: Pending sales didn’t fall across all regions, as contract signings increased slightly in the South. The largest decline in pending sales occurred in the West, where the index dropped 7.8%, closely followed by the Northeast (-7.4%).

The big picture: A record-low inventory of homes is leaving buyers with few options to choose from, and builders have even begun selling a vast array of properties that haven’t been built yet to meet this demand.

But there’s evidence that demand could begin to suffer as affordability concerns grow. “The timely weekly mortgage purchase applications index is signaling a slowing in activity,” said Rubeela Farooqi, the chief U.S. economist at High Frequency Economics, while citing mortgage application data from the Mortgage Bankers Association. The latest reading signified the lowest level for mortgage applications since mid-May of last year, Farooqi noted.

Some of the decline in the volume of mortgage applications was a reflection of the disruption in Texas caused by recent winter storms. But generally speaking, rising mortgage rates are reducing interest from home buyers to an extent. With prices also quickly rising, buying a home is becoming less and less affordable, which could hinder home sales in the months to come.

What they’re saying: “Home buyers are staying surprisingly active during the colder months. However, buyer demand is getting squeezed by a scarcity of ‘For Sale’ signs and rising mortgage rates,” said Realtor.com senior economist George Ratiu.

Source: marketwatch.com

Even with high lumber prices, new home sales beat

Extreme increases in lumber prices have caused some people to go bearish on new home sales. Not this one! If we play a version of rock, paper, and scissors with lumber prices and mortgage rates, mortgage rates will win. Mortgage rates have a much more significant influence on the new home sales market than lumber prices, even at their current highs.

Proof of this is the recent new home sales report released by the Census Bureau. New home sales beat expectations by a lot, and all the revisions to the last report were positive.

Last month, I wrote that we should have expected new home sales to moderate after their parabolic rise.

Sales are still working to find a sustainable trend after the massive distortion in all housing data lines due to COVID-19. This recent report, especially regarding the positive revisions to the last report, tells a solid story for new home sales in 2021 as long as rates stay low.


From Census:  “Sales of new single-family houses in January 2021 were at a seasonally adjusted annual rate of 923,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.3% (±18.1%)* above the revised December rate of 885,000 and is 19.3% (±19.5%)* above the January 2020 estimate of 774,000.

When reviewing new home sales data, it is wise to keep an eye on the monthly supply. When the monthly supply is 4.3 and below, builders will have the confidence to continue building. This is especially true when the 3-month average is 4.3 months or below. Currently, inventory is at four months with a three-month average of 4.06 months of supply, so it’s looking pretty good. The revisions on this report showed a lower monthly supply than in the previous month.

The low monthly supply is why builders’ confidence is high, despite the massive spike in lumber prices. As a high school basketball coach in my previous life, I know that sometimes all that matters is that you shoot better than your opponents. Don’t overthink it. Better sales plus lower inventor equals increased builder confidence.

Today, the MBA’s purchase application data was also positive by 7% year over year, even with the President’s Day holiday and the Texas snowstorm — two factors that typically hurt applications. Positive year-over-year growth is a good thing. 

So far this year, our year-over-year comparisons have been against a “pre-covid” housing market. March 18 is almost here, which means year-over-year comparisons of housing data are going to get funky. If you see scorching year-over-year growth – don’t be fooled that it will be a sustainable trend. 

Purchase applications in 2021 have exceeded my estimated peak rate of growth of 11%. I expected to see a trend growth rate between 1%-11% year over year, up until March 18.  We are currently trending at 12.375%. The substantial purchase application growth speaks well for housing sales 30 to 90 days out.

The take-home message is that sales are strong, which will contribute to hotter home prices. Right now, we want the rate of growth to cool down.

Next week for HousingWire, I will explain why we should expect to see some purchase application data show weaker year-over-year data in the second half of 2021. There is more to this story than higher mortgage rates.

Source: housingwire.com