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There is nothing good to report on mortgage rates from last week. The chart below shows that we broke the critical technical level on the 10-year yield (marked with a red line). The CPI data, which the Federal Reserve doesn’t track for its 2% target, came in 0.1% hotter than estimates, but that was good enough to take one mortgage rate cut off the table for now. I talked about this last week on the HousingWire Daily podcast.
Now that this technical level has been broken, 2024 is going to be a lot more interesting, something I discussed in an interview with Yahoo Finance.
Now, with the specter of a wider war in the Middle East as Iran launches strikes against Israel, what will the bond market do? Some will say that bonds rallied ahead of the pending war news on Friday, but we will get a better answer Sunday night with bond market trading.
One positive thing for mortgage rates is that spreads between the 30-year mortgage and the 10-year yield are improving. I believe these spreads became one of the bigger mortgage stories, as the banking crisis sent the spreads to new cycle highs. This data line is improving and for now, it mitigates the damage done by the higher 10-year yield.
Of course, if the spreads get better from here and bond yields fall again, then mortgage rates can act much better on the downside. This is something to watch for in the future.
Things are hapenning fast with mortgage rates, which is why I update HousingWire’s Mortgage Rate Center page with analysis every weekday morning — looking at how the bond market reacts to economic data or an event that can move rates.
Usually, I would jump for joy at last week’s inventory growth. However, last week’s numbers don’t get a passing grade: The rebound impact of Easter boosted last week’s inventory data, just like it caused the inventory data to decline in the previous week.
One item to note for this year is the year-over-year comparisons on active inventory. Inventory bottomed out on April 14 last year, which was the longest time it took for the housing market to find a seasonal bottom ever. From now to the end of the year, the easy comps to show inventory growth are over. It will get more challenging to show more growth unless inventory starts to pick up, especially toward the end of 2024. However, with higher mortgage rates, we should see more inventory growth.
It’s the same story with the new listing data; we got a nice snap-back from Easter. I am a big fan of the inventory growing year over year based on new listing data, and this is a big plus for the housing market. I had anticipated more growth, but as long as we are showing some growth this year, I will take that as a victory. Last year, it was savagely unhealthy that new listings data was trending at the lowest recorded levels.
In an average year, one-third of all homes take a price cut; this is standard housing activity. When mortgage rates increase, demand falls and the price-cut percentage grows. That percentage falls when rates drop and demand improves.
This price-cut data line is critical to track now as inventory growth picks up for spring and mortgage rates have increased since the start of the year. Higher mortgage rates mean higher inventory growth and more price cuts, which keeps the model simple.
Here is the price-cut percentage for last week over the last several years:
Purchase applications dropped last week, down 5% week to week, but they showed a significant 23% decline year over year. The Easter holiday year-over-year comps have played a bit into this data line. We saw an excellent rebound in our pending contracts data last week and the inventory growth data from week to week. Now that Easter is out of the mix, we can move ahead on the week-to-week and year-over-year data with some more clarity.
Since November 2023, when mortgage rates started to fall, we have had 10 positive prints versus seven negative prints and two flat prints week-to-week. Year to date, we have had four positive prints, seven negative prints, and two flat prints.
Do mortgage rates move with war news? Yes, they often do. Some speculate that in a war, money goes into the bond market as a flight to safety, pushing rates lower. However, war can also lead to higher inflation and higher mortgage rates. I discussed the economics of conflicts tied to mortgage rates as a premise for double-digit mortgage rates on this recent HousingWire Daily podcast.
This week, we will see how the bond and stock markets react to the news from the Middle East. We will also get retail sales numbers, which have been holding up better than most had anticipated for some time now. Also, we’ll get a ton of housing data, including the builders confidence, housing starts and existing home sales.
Source: housingwire.com
Homebuying demand also showed signs of softening. Home tours were up 15% compared to the start of the year, a slower increase than the 21% seen at the same time in 2023. Mortgage purchase applications remained flat for the week. Additionally, pending home sales dropped 2.8% year-over-year and unexpectedly declined during the last week of … [Read more…]
When you hear of a company “going public,” one route is via an initial public offering, or IPO — but a company can also go public through a direct listing, where no new shares are created and underwriters are not required.
Direct listings, also known as the direct listing process (DLP), direct placement, or direct public offering (DPO), are a way for companies to raise capital by selling existing shares without the complexity of engaging investment banks and other intermediaries.
While a direct listing is typically less expensive than an IPO, and typically there’s no lock-up period, there is a risk in direct listing shares without the support of underwriters.
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A direct listing is one method by which a company can list shares of stock on a public exchange such as the New York Stock Exchange (NYSE) or Nasdaq directly, without using underwriters to create new shares, as you might with an IPO.
While some listing choices involve selling shares of stock to investors, IPOs and direct listings have many differences. The main difference between the two is that with an IPO a company issues and sells new shares of stock, while with a direct listing shareholders sell existing shares.
The differences between using a direct listing vs. an IPO to take a company public are pretty straightforward.
If a private company is interested in going public, but doesn’t want the hassle of working with underwriters, they may choose to do a direct listing. With a direct listing, anyone who owns shares in the company can sell them directly to the public once the new company is listed on a public exchange. Shareholders may include investors, promoters, and employees.
By choosing a direct listing over an IPO, a company can avoid using an underwriter, which potentially saves money and time. Underwriters fulfill multiple roles in the IPO process, including working with the fledgling company to meet regulatory standards and set the initial price per share. These are important steps, but not necessary if a new company is only selling existing shares.
Further, because no new shares are created with a direct listing, existing shares won’t get diluted.
💡 Quick Tip: Access to IPO shares before they trade on public exchanges has usually been available only to large institutional investors. That’s changing now, and some brokerages offer pre-listing IPO investing to qualified investors.
When a company offers shares of stock to the general public for the first time, it’s known as an initial public offering (IPO).
Before an IPO, a company is considered private, which means that shares of stock are not available for sale to the general public. Also, a private company is not generally required to disclose financial information to the public.
To have an IPO, a company must file a prospectus with the Securities and Exchange Commission (SEC). The company will use the prospectus to solicit investors, and it includes key information like the terms of the securities offered and the business’s overall financials.
Initial public offerings are a popular choice for companies looking to raise capital. The company works with an underwriter (typically part of an investment bank), who helps navigate regulations and figure out the initial price of the shares. They may also purchase shares from the company and sell them to investors (such as mutual funds, insurance companies, investment banks, and broker-dealers) who will in turn sell them to the public.
One benefit of working with an underwriter is the greenshoe option. This is an agreement that a company can enter into with the underwriter in which the underwriter has the right to sell a greater number of shares during the sale than they originally intended to, if there is a lot of market demand. This can help the company gain additional investment.
Working with an underwriter creates some security for the company, which is one reason so many companies go the route of the IPO.
There are advantages and disadvantages for companies and investors when it comes to direct listings vs. IPOs.
Less expensive than an IPO for the company
Unlike IPOs, direct listings do not require underwriters, since no new shares are being created. Typically, an underwriter charges a fee between 3% and 7% per share. Depending on the scope of the IPO, these fees can add up to hundreds of millions of dollars.
In addition, underwriters often purchase shares below their agreed-upon market value, so companies don’t receive as much investment as they may have had they sold those shares directly to retail investors.
No lock-up periods for shares
If a company goes through an IPO, existing shareholders are generally not allowed to sell their shares to the public during the sale and for a period of time following the sale. These lock-up periods are required in order to prevent stock prices from decreasing due to an oversupply.
The direct listing model is essentially the opposite, in which existing shareholders sell their stock to the public and no new shares are sold.
Provides liquidity for existing shareholders
Anyone who owns stock in the company can sell their shares during a direct listing.
💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.
There are also some potential drawbacks when it comes to direct listings.
Risk that shares won’t sell
With a direct listing, the amount of shares sold is based solely on market demand. Because of this, it’s important for a company to evaluate the market demand for its stock before deciding to go the route of a direct listing.
Companies best suited to direct listings are those that sell directly to consumers and have both a strong, recognizable brand and a business model that the public can easily understand and evaluate.
No help from underwriters with marketing and sales
Underwriters provide guarantees, promotion, and support during the listing process. Without an underwriter involved, the company may find that shares are difficult to sell, there may be legal issues during the sale, and the share price may see extreme swings.
No guarantee of stock price
Just as there is no guarantee that shares will sell, there is also no guarantee of stock price. In contrast, having an underwriter can help manage potentially extreme price swings.
This chart outlines the main points covered above.
Pros of Direct Listings | Cons of Direct Listings |
---|---|
Less expensive than an IPO | Potential for initial volatility |
No lock-up periods | Risk that shares won’t sell |
Liquidity for existing shareholders | No help from underwriters |
No stock price guarantee |
Direct listings are an appealing alternative to IPOs for private companies who want to go public, thanks in part to lower costs and reduced regulations. A direct listing may also be appealing to retail investors who want to purchase shares from companies that are going public.
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A direct listing offers a more direct path to going public on a stock exchange. The company doesn’t have to issue new shares, as only existing shares get sold in a direct listing. This eliminates the need for intermediaries like underwriters.
Yes, investors can buy a direct stock listing as they would any other stock listed on an exchange.
Since direct listings bypass the middleman and eliminate the need for underwriters, they can be less expensive for a company vs. IPOs, but the lack of marketing support could hurt the stock price and initial sales.
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Active inventory still needs to be faster for my taste. My model has active inventory growing at least 11,000-17,000 every week with higher rates. This model was based on rates over 7.25%, but even when mortgage rates headed toward 8% last year, we didn’t see that kind of growth in inventory. This week, inventory fell week to week, but that’s the Easter bunny’s fault.
While the number of new listings isn’t growing as fast as I thought it would this year, it’s still growing, which means we have more sellers looking to buy a home once they sell. This variable can change when we experience a recession or job loss. However, for now, this is a plus for the U.S. housing market, and we should ignore the decline last week.
Number of new listings last week, by year:
In an average year, one-third of all homes take a price cut; this is standard housing activity. When mortgage rates go higher and demand falls, the price-cut percentage grows; when rates drop, and demand gets better, the percentage falls.
It’s also critical to consider the year-over-year data with this line. Last year, when mortgage rates were heading toward 8%, the year-over-year price-cut percentage was continuously declining, which makes sense when you consider 2022 was a very abnormal year with the most significant home sales crash ever. As inventory is growing and demand isn’t booming on the mortgage side of things, the price-cut percentage is increasing year over year.
It’s critical to keep track of this data line as it shows price growth cooling down. That’s always what the doctor ordered because we have had massive housing inflation post-COVID-19. Having accurate weekly data gives us a big advantage to see what’s coming next.
Here’s the price-cut percentage for last week over the last several years:
We had some good and bad news last week with mortgage rates.
First, the bad news” The 10-year yield broke a critical support level on Friday, and if we get more bond market selling, that will pressure mortgage rates higher.
But the good news is that the spread between the 10-year yield and mortgage rates is getting much better, sooner than I thought it would this year. We didn’t see much reaction on Friday with mortgage rates because the spreads were good. This is a huge plus because if and when the 10-year yield falls and if the spreads get even better, this means we could quickly get sub-6% mortgage rates with the 10-year yield at 3.37% — without it even breaking my “Gandalf line in the sand.”
I wrote a detailed article on Friday analyzing the jobs report, and showing how the latest labor data gives the Federal Reserve a pathway to land the plane if they want. See here for more details and charts.
As you can see below, even though the growth rate of inflation has fallen a lot, CPI inflation has gone from over 9% year over year to 3.2%; the 10-year yield is still elevated. As always, the labor data is more important than inflation data for now.
Purchase application data didn’t move much last week, making it back-to-back weeks with flat weekly data. It was flat on a week-to-week basis and down 13% year over year. Since November 2023, after making holiday adjustments, we have had 10 positive and six negative purchase application prints and two flat prints. Year to date, we have had four positive prints, six negative prints and two flat prints.
The data tells me that since late 2022, many people have been waiting for lower mortgage rates, and even though rates are elevated compared to the last decard, people still jumped back into the market. Imagine if mortgage rates stayed near 6% for a year — mortgage demand would grow and we wouldn’t need tax credits to boost demand for existing homes.
We are jumping right from jobs week into inflation week with the upcoming CPI and PPI inflation data. These will be important reports as many market players have used the seasonal base pricing variable as a reason why the last two months’ inflation data was a bit hotter than usual. This week will be critical to watch because if the inflation data comes in cooler than anticipated, the 10-year yield should fall, and with spreads getting better, that will be a plus for mortgage rates.
Source: housingwire.com
While higher mortgage rates have dampened home sales, robust buyer demand remains a constant factor pressuring limited supply. “Robust demand has continued to drive home price increases for both listed and closed homes on a year-over-year basis,” Sicklick said in the report. “With rates and home prices continuing to rise, we expect a quieter spring … [Read more…]
Mortgage loans refinancing declined for the week ending March 22, contributing to a drop in home loans applications even as interest rates decelerated, data from the Mortgage Bankers Association (MBA) showed on Wednesday.
The Refinance Index fell 2 percent from the prior week and was 9 percent lower compared to a year ago. Overall, mortgage applications dropped by 0.7 percent at a time when the 30-year fixed rate mortgage ticked down to 6.93 percent from the prior week’s 6.97 percent.
“Mortgage application activity was muted last week despite slightly lower mortgage rates. The 30-year fixed rate edged lower to 6.93 percent, but that was not enough to stimulate borrower demand,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement shared with Newsweek.
Read more: What is Mortgage Refinancing and How Does It Work?
The drop in refinancing applications comes as the housing market has been in flux nationwide.
Borrowing costs for home loans jumped to their highest since the turn of the century last year, peaking at about 8 percent in the fall. That jump in mortgage rates was sparked by the Federal Reserve hiking rates to their highest in more than two decades as policymakers moved to tighten financial conditions to battle soaring inflation. Expectations that the central bank will start lowering those rates has helped bring mortgage rates down.
Recent data suggests that buyers are still looking for lower borrowing costs. New home sales declined in February, amid high mortgage rates that economists say depressed activity as the housing market enters its busy Spring season.
Kan said on Wednesday that still elevated mortgage rates are still keeping buyers on the sidelines.
“Purchase applications were essentially unchanged, as homebuyers continue to hold out for lower mortgage rates and for more listings to hit the market,” he noted.
Kan suggest limited housing inventory is also proving to be a hindrance to the market.
“Lower rates should help to free up additional inventory as the lock-in effect is reduced, but we expect that will only take place gradually, as we forecast that rates will move toward 6-percent by the end of the year,” he said. “Similarly, with rates remaining elevated, there is very little incentive right now for rate/term refinances.”
Read more: Best Mortgage Lenders
The lock-in effect was particularly acute in the existing homes market. Most homeowners have low mortgage rates which has discouraged them from putting their properties in the market if that means they may have to acquire a new home with borrowing costs closer to 7 percent. About 90 percent of homeowners own mortgages that are under 6 percent, according to real estate platform Redfin.
There have been some signs recently that the existing homes market is recovering after struggling mightily last year.
In February, sales of previously owned homes rose by nearly 10 percent.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
The average monthly mortgage payment for a home purchase rose in recent weeks, even as the tight housing market shows signs of loosening.
Payments increased 10% year-over-year to an all-time high of $2,721 for the four weeks ended March 24, Redfin said on Thursday morning.
The Mortgage Bankers Association also released its February Purchase Applications Payment Index the same day, and found the median disbursement increased by $50 from January, to $2,184. That figure is a $123 increase from February 2023.
The PAPI value increased 2.4% to 170.7 in February from 166.8 in January. For the same month last year, the index was 169.7, a 1.1% increase, with the year-over-year change attributed to a 4.8% rise in median income besides the 6% rise in payments.
Rates sticking around the 7% range is a contributing factor, the MBA said.
“Challenging affordability conditions and low housing supply are keeping some prospective homebuyers on the sidelines this spring,” said Edward Seiler, associate vice president, housing economics, and executive director of the Research Institute for Housing America, in a press release. “The eventual, expected decline in rates in the coming months will hopefully spur new activity in the housing market.”
However, Redfin pointed out that during the period, new listings were up 15% from the four weeks ended March 24, 2023, the most in nearly three years. The total number of homes is 6% higher, the biggest increase in approximately one year.
“High mortgage rates aren’t deterring buyers as much as they were last year; a lot of people want to get in now before prices go up more,” said Redfin agent Rachel Riva based in Miami, in a press release. “All of my recent listings have gone under contract in under 10 days, and most of them have received multiple offers.”
Buyers are dealing with elevated mortgage rates in a number of ways, Riva pointed out. “Some are making high down payments to lower their monthly payments, and some are willing to take on a high rate now in hopes of refinancing when and if rates come down.”
Median-priced single-family homes and condos remain less affordable in the first quarter compared with historical averages in more than 95% of U.S. counties that Attom Data Solutions had enough data to analyze.
Meanwhile, major expenses on those homes were 32.3% of the average national wage in the first quarter, several points above common lending guidelines.
As bad as that data sounds, it is actually a quarter-to-quarter improvement for both, although worse than one-year prior, Attom said.
The portion of average wages nationwide required for typical mortgage payments including property taxes and insurance remains up almost 3 percentage points from one year ago and 11 points higher from early in 2021.
“The picture for home buyers is brightening a little again as affordability measures have improved for the second quarter in a row,” said Rob Barber, Attom’s CEO, in a press release.
Even though the prospect of owning a home remains a financial stretch or even a pipe dream, for many households, with mortgage rates coming down from high points near 8% and home prices growing only by modest amounts, “it’s gotten a bit easier for average wage earners to afford a home so far this year,” Barber said. “The upcoming Spring buying season will say a lot about whether home prices remain stable enough for this trend to continue.”
In only 13 counties nationwide were home prices more affordable than the historical average, but even that needed to be taken with a grain of salt because two of those locales were New York County, also known as Manhattan, and San Francisco County, whose entirety is the city limits. Those are traditionally among the highest priced markets in the U.S.
Source: nationalmortgagenews.com
Purchase applications remained virtually flat (-0.2%), reflecting continued hesitancy among homebuyers who await further rate decreases and more available listings. Refinance activity also declined 2% from the previous week. Read more: Housing market slowdown hits sellers “Lower rates should help to free up additional inventory as the lock-in effect is reduced, but we expect that … [Read more…]
Now that we are right in the middle of the spring buying season, my inventory model is simple: with higher mortgage rates, just like last year, we should be able to grow weekly active inventory between 11,000 – 17,000 on some weeks. Unfortunately, I batted a whopping zero last year since inventory growth never hit that level for even one week — even when mortgage rates hit 8%. This model was based on rates over 7.25%, which is my peak rate forecast.
While I am thrilled that new listings data is growing year over year, something I have been anticipating for some time, the growth in 2024 has been disappointing because I had expected a bit more by now. This was my big talking point on CNBC earlier in the year. Still, new listing data is a positive story. Here are the number of new listings for last week over the last several years:
For context, new listings data at this time in 2010 ran at 326,266.
Every year, one-third of all homes take a price cut before selling — this is regular housing activity and this data line is very seasonal. The price-cut percentage can grow when mortgage rates increase and demand gets hit.
As inventory and demand grow year over year, the price-cut percentage data increases year over year. So, we will keep tracking this data line to see how high it goes this year. We keep it simple: higher inventory softness in demand means price growth is weakening. As we can see below, the year-over-year data is showing a higher percentage of price cuts.
For those of you who have followed me for the last 12 months, you know how important the 4.34% level on the 10-year yield is for my economic work and therefore for the mortgage rate discussion. A break above this level would send mortgage rates toward 7.5%-8%. So far, so good here.
We had the PCE inflation report come out Friday and because some people were expecting a hotter number than estimates, it was perceived to be bullish for rate cuts. However, the markets were closed Friday, so we have to wait and see how trading goes on Monday. The 10-year yield channel is between 4.25%-3.80%, which looks correct as long as the economic data stays firm and jobless claims don’t break higher. This means mortgage rates will likely remain in the upper range of my 2024 forecast of 6.75%-7.25%.
There was not too much action in mortgage rates last week, but with jobs week coming up, we could see some movement. As you can see below, the 10-year yield has made a massive move from 2022 and has stayed above 4%, even with the progress we have made with inflation. Always remember, when it comes to discussions about rates and the Fed pivoting, it’s always labor over inflation data.
Purchase application data didn’t move much last week. It was flat on a week-to-week basis and down 15% year over year.
Since November 2023, after making holiday adjustments, we have had 10 positive and six negative purchase application prints and one flat print. Year to date, we have had four positive prints versus six negative prints and one flat print.
What have 2022, 2023, and 2024 shown us? Purchase apps made a solid positive run up until mortgage rates started to get back over 7%. This was similar to 2023 data, when purchase apps had 12 weeks of a positive run-up until rates moved toward 7% and then 8%.
First, the trading on Monday will be exciting because of the PCE inflation report; some argue it was hot and some say it wasn’t. The market decides this, and bond trading will judge it on Monday morning.
Also, Federal Reserve Chairman Powell talked on Friday. I believe Powell’s crucial comment was that the Fed won’t overreact to significant disinflation or heated inflation reports. I think some people missed this. If you want to understand why the markets still have three rate cuts priced in, it’s this mindset.
Then it’s jobs week, with four labor reports, and, of course, for me, it’s labor over inflation data, so buckle up!
Want more context? On the PowerHouse podcast with HousingWire CEO Clayton Collins, I discussed why the data lines we look at in the Housing Market Tracker are so critical for those in the housing industry.
Source: housingwire.com
The Mortgage Bankers Association said its Market Composite Index moved lower last week, apparently indifferent to a slight improvement in mortgage interest rates. The Index, which measures loan application volume, decreased 0.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index declined 0.4 percent compared with the previous week.
The Refinance Index decreased 2.0 percent from the previous week and was 9.0 percent lower than the same week one year ago. The refinance share of mortgage activity accounted for 30.8 percent of total applications compared to 31.2 percent the previous week.
The Purchase Index ticked down 0.2 percent both before and after its seasonal adjustment. It was 16.0 percent lower than the same week one year ago.
“Mortgage application activity was muted last week despite slightly lower mortgage rates. The 30-year fixed rate edged lower to 6.93 percent, but that was not enough to stimulate borrower demand,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications were essentially unchanged, as homebuyers continue to hold out for lower mortgage rates and for more listings to hit the market. Lower rates should help to free up additional inventory as the lock-in effect is reduced, but we expect that will only take place gradually, as we forecast that rates will move toward 6 percent by the end of the year. Similarly, with rates remaining elevated, there is very little incentive right now for rate/term refinances.”
Additional Highlights from the MBA Weekly Mortgage Application Survey
Source: mortgagenewsdaily.com