Freddie Mac’s Primary Mortgage Market Survey, which focuses on conventional and conforming loans with a 20% down payment, shows the 30-year fixed rate averaged 6.96% as of August 10, up from last week’s 6.90%. By contrast, the 30-year fixed-rate mortgage was at 5.22% a year ago at this time. The 15-year fixed-rate mortgage also rose this week to 6.34%, up 9 basis points from the prior week.
Other mortgage rate indices showed higher rates on Thursday morning:
HousingWire’s Mortgage Rates Center showed Optimal Blue’s 30-year fixed rate for conventional loans at 6.99% on Wednesday, compared to 7.02% the previous week. At Mortgage News Daily on Wednesday, the 30-year fixed rate for conventional loans was at 7.05%, down 8 basis points from the previous week.
“For the third straight week, mortgage rates continued creeping up and are now just shy of 7%,” said Sam Khater, Freddie Mac’s chief economist. “There is no doubt continued high rates will prolong affordability challenges longer than expected, particularly with home prices on the rise again. However, upward pressure on rates is the product of a resilient economy with low unemployment and strong wage growth, which historically has kept purchase demand solid.”
The economy, indeed, remains on strong footing. In spite of higher prices, consumer spending remains strong and consumer confidence has hit a two-year high. Job growth has slowed but wages are still rising and the unemployment rate is low. The second quarter GDP growth exceeded expectations but manufacturing indices continue to show a slowdown.
The economy remains strong for the real estate sector
According to George Ratiu, chief economist at Keeping Current Matters, real estate markets have benefited from more people gaining jobs and better paychecks this year.
“While sales of existing homes have been lagging, the challenge comes mainly from too many buyers chasing not enough available properties,” said Ratiu. “Considering that prices have been rising over the past six months and mortgage rates have been pegged above 6.5% since May of this year, the 4.2 million annual sales pace is a highlight of solid demand.”
Additionally, economists have observed a rebound in new home sales this year, with buyers seeking to leverage new construction options and any competitive builder incentives.
When rates were around 7% in late October and November of 2022, demand for housing slowed down significantly, said Bright MLS Chief Economist Lisa Sturtevant. However, demand bounced back after the winter holiday, yielding a surprisingly strong spring housing market.
Ratiu predicts that borrowing costs will stay high as long as financial markets are dreading the next Fed’s meeting. At the moment, the spread between the 30-year fixed rate mortgage and the 10-year Treasury is significant — It hovers around 300 basis points, a level rarely seen in the past 50 years. Ratiu analyzes that without the elevated risk premium and with a spread closer to a historical average of 172 basis points, today’s 30-year fixed mortgage rate would be around 5.7%.
Historically, mortgage rates tend to start cooling once inflation abates. There is typically a six-to-eight-month lag. If inflation maintains its current trajectory, homebuyers can expect to see rates slide back toward 6% in the Fall, concluded Ratiu.
For the first time in nearly two months, mortgage rates dropped below 3% last week, down seven basis points to 2.97%, according to Freddie Mac’s Primary Mortgage Market Survey.
“The drop in mortgage rates is good news for homeowners who are still looking to take advantage of the very low-rate environment,” said Sam Khater, Freddie Mac’s chief economist. “Freddie Mac research suggests that lower income and minority homeowners have been less likely to engage in the refinance market. Low and declining mortgage rates provide these homeowners the opportunity to reduce their monthly payment and improve their financial position.”
The Mortgage Bankers Association reported after six consecutive weeks of dips, mortgage applications rose 8.6%, with Joel Kan, MBA’s associate vice president of economic and industry forecasting, pointing directly to lower rates.
“Borrowers acted on the decrease in rates for most loan types, with both conventional and government refinance applications showing gains,” said Kan. “The spring housing market also saw a boost from lower rates, with purchase applications — driven by a jump in conventional applications — increasing over 5%.”
According to data from Black Knight, a near 10-basis-point drop in mortgage rates can reinstate millions of borrowers in to “high-quality refinance candidate” status. After rates fell to 3.04% the week prior, Black Knight found the number of high-quality refi candidates moved back up to 13 million — potentially putting $3.6 billion back in to homeowners’ pockets.
But consumers are going to need to act fast as rates are projected to rise during the rest of the year.
Fannie Mae’s economic and strategic research group estimates refinance origination volumes in 2022 will total $1.1 trillion, a 48% decline from 2021 and a $40 billion downward revision from last month’s forecast. On the flip side, the group is now expecting 2021 and 2022 purchase volumes for the overall mortgage market to total $1.9 trillion for each year, an upward revision of a whopping $66 billion and $84 billion, respectively, from the previous month’s forecast.
After six consecutive weeks of dips, mortgage applications rose 8.6% in the latest report from the Mortgage Bankers Association.
The jump in applications can be traced to mortgage rates falling to the lowest level in two months, prompting a small resurgence in refinance activity, said Joel Kan, MBA associate vice president of economic and industry forecasting.
“Borrowers acted on the decrease in rates for most loan types, with both conventional and government refinance applications showing gains,” Kan. “The spring housing market also saw a boost from lower rates, with purchase applications — driven by a jump in conventional applications — increasing over 5%.”
Kan added the MBA expects the purchase market to remain strong due to the recovering job market, vaccination rollout and supportive demographics, which will combine to fuel housing demand in the months ahead.
The refinance index also increased, up 10% from the previous week. The seasonally adjusted purchase index also increased 6% from one week earlier. The unadjusted purchase index increased 7 % compared with the previous week — and was 57% higher than the same week one year ago.
The refinance share of mortgage activity increased to 60% of total applications from 59.2% the previous week.
The FHA share of total mortgage applications increased to 11.3% from 10.8% from the week prior. However, the VA share of total applications decreased to 11.5% from 12.1% the week prior.
Here is a more detailed breakdown of this week’s mortgage application data:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.2% from 3.27%
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) decreased to 3.34% from 3.35%
The average contract interest rate for 30-year fixed-rate mortgages decreased to 3.15% from 3.24%
The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.65% from 2.67%
The average contract interest rate for 5/1 ARMs increased to 2.67% from 2.6%
The only thing consistent about mortgage rates right now is that they are volatile in the wake of mixed economic signals and recent bank failures. Mortgage rates ticked down this week, after climbing for two weeks in a row.
The 30-year fixed-rate mortgage averaged 6.39% in the week ending May 4, down from 6.43% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.27%.
“This week, mortgage rates inched down slightly amid recent volatility in the banking sector and commentary from the Federal Reserve on its policy outlook,” said Sam Khater, Freddie Mac’s chief economist.
“Spring is typically the busiest season for the residential housing market and, despite rates hovering in the mid-6% range, this year is no different,” he said. “Interested homebuyers are acclimating to the current rate environment, but the lack of inventory remains a primary obstacle to affordability.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
Fickle rates
Mortgage rates have been particularly fickle recently, experiencing daily fluctuations due to economic volatility and recent bank failures, said Jiayi Xu, Realtor.com economist.
The Federal Reserve announced a quarter-point rate hike on Wednesday, pushing the federal funds rate to the highest it has been in 16 years. The increase was expected, and in its statement the Fed left open the possibility for an upcoming pause in rate hikes.
“People did talk about pausing, but not so much at this meeting. There’s a sense that we’re much closer to the end of this than to the beginning,” Fed Chair Jerome Powell said during a post-meeting press conference. “If you add up all the tightening that’s going on through various channels, we feel like we’re getting close or maybe even there, but again that is going to be an ongoing assessment.”
The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
Analysts have said that recent bank failures are doing some of the Fed’s work on reducing inflation for it. The move is unlikely to have a big impact on mortgage rates, as the move was already factored in for most investors said Xu.
“The higher rates will continue to slow economic growth toward the target rate of 2%,” she said. “However, as the impacts of earlier rate increases continue to work through the economy and the recent bank failures reveal the impact of higher rates, there is a risk of the US economy entering a recession.”
Slower than usual spring housing market
This time of year is typically very brisk for home selling. But with mortgage rates still elevated and a stubbornly low inventory of homes to buy, the market is much more sluggish than usual.
“In a typical year, we would expect to see the number of homes for sale begin to increase more significantly from this point forward,” said Xu. “However, mortgage rates remain elevated, leading many sellers to report feeling ‘locked in’ by their current low mortgage rate and planning to wait until rates come down before selling, leading to fewer newly listed homes than a year ago.”
One area of the market that is seeing more activity is new construction. Facing limited inventory of existing homes, some buyers are turning to newly built homes.
Mortgage applications decreased slightly last week, according to the Mortgage Bankers Association, with refinance and purchase activity both remaining well below year-ago levels.
“While MBA expects the ongoing uncertainty in the financial markets to keep mortgage rates volatile in the weeks ahead, we still anticipate they will fall, ending the year closer to 5.5%,” said Bob Broeksmit, MBA President and CEO.
In my last market outlook for HousingWire, published in January, I offered two predictions for the early 2023 retail housing market based on forward-looking Auction.com bidding behavior from the fourth quarter of 2022:
A home price correction nationwide and in the majority of major markets
Home sales volume bottoming out
While both predictions have played out in large part (more on that below), bidder behavior on Auction.com in the first quarter turned a sharp corner, indicating a robust rebound on the horizon for the retail housing market. While it’s not as clear how long-lasting the rebound will be, it does still provide some much-needed good news for the spring and summer housing market.
Before diving into more specifics about what Auction.com bidder behavior is predicting for the next three to six months, a quick detour on why auction bidder behavior is a reliable forward-looking indicator for the retail housing market and how that proved to be the case for bidder behavior in Q4 2022 accurately foreshadowing retail market trends for Q1 2023.
A look back: The early 2023 housing slowdown
Bidding behavior on the Auction.com platform provides one of the best barometers of the retail housing market because the success and livelihood of these bidders depends heavily on them accurately anticipating what the retail market will look like in the next six months. These buyers are primarily local community developers who purchase distressed properties and then resell or rent those properties on the retail market following rehab — a process that typically takes about six months.
Auction.com bidding behavior turned sharply more conservative in the second half of 2022, particularly in the fourth quarter, indicating a mild home price correction of less than 5% nationwide in early 2023.
That mild correction has played out, with an emphasis on mild. The national median home price decreased 1.7% in April 2023, according to the National Association of Realtors (NAR). April was the third month with a year-over-year decline in national home prices, and home prices in March were down 9% from the peak in June 2022.
Data from NAR also shows a home price correction in nearly one-third of the 221 markets it tracks in the first quarter of 2023. While not the majority of markets that Auction.com bidder behavior was predicting, the NAR data still shows the corrections were quite widespread, including in major markets like San Jose, California (down 13.7% year-over-year); Seattle, Washington (down 6.3%); Salt Lake City, Utah (down 6.1%); Denver, Colorado (down 3.9%); and New York (down less than 1%).
Lastly, the NAR data from the first quarter also proved out the second prediction based on Auction.com bidding behavior in Q4 2022: a bottoming out of home sales volume. Annualized existing home sales volume dropped to a pandemic low of 4 million in January, but volume rebounded to 4.6 million in February and was at 4.3 million in April.
This article is part of our ongoing 2023Housing Market Forecast series. After this series wraps, join us on May 30 for the next Housing Market Update Event. Bringing together some of the top economists and researchers in housing, the event will provide an in-depth look at the top predictions for this year, along with a roundtable discussion on how these insights apply to your business. To register, go here.
A look forward: A mid-2023 housing rebound
Enough about how well auction bidder behavior predicted retail market trends in early 2023. What is it predicting for the next six months?
Bidder demand at foreclosure auction turned a sharp corner higher in the first quarter, both in terms of quantity demanded and price demanded. This indicates that home price appreciation will likely rebound back into positive territory in the second and third quarters of 2023.
The quantity demanded metric comes from online saves per property brought to auction. This saves-per-property metric had fallen to a two-year low in Q4 2022 (although it was still well above pre-pandemic levels). But it rebounded 17% in the first quarter, indicating that bidders were starting to open up their buy box a bit after shrinking it rapidly in the face of skyrocketing mortgage rates in the latter part of 2022. Those mortgage rates have stabilized in early 2023 helping to give buyers more confidence and certainty.
The price demanded metric is the winning bid divided by the estimated “after-repair” property value. This price demanded dropped sharply in the latter part of 2022, falling to a pandemic low of 53% in Q4 2022. That drop reflected bidders building a bigger margin into their acquisition pricing in anticipation of softening home prices. But the price demanded rebounded to 54% in the first quarter, an indication that bidders were less concerned about a price slowdown or correction going forward.
It’s important to note that, despite the quarter-over-quarter drop, the foreclosure auction price demanded in Q1 2023 was still well below the when the pre-pandemic average of 60% in 2019. Bidders are still not as bullish about home price appreciation as they were back in 2019.
But they are buying more, with the foreclosure auction sales rate — the percentage of properties available for auction that sell — jumping five percentage points in Q4 2023 from a three-year low in Q4 2022.
Seller pricing caveat
This rising sales rate provides evidence that sales volume in the retail market will continue to rise off its anemic annual pace of 4.0 million in January 2023 — with one important caveat: that home sellers also adjust pricing given the market reality of 6-plus percent mortgage rates for the foreseeable future.
Part of the increase in sales rate at foreclosure auction was thanks to buyers willing to deflate their purchase discount cushion a bit. But part of it was also thanks to sellers willing to listen to the market and adjust pricing lower in response.
The average credit bid – the minimum amount the foreclosing lender is willing or able to accept to sell the property – dropped to 51% of estimated after-repair property value in the the fourth quarter of 2022 and stayed there for the first quarter of 2023. That 51% pricing by sellers was a more than five-year low.
Seller behavior at foreclosure auction is not as predictive of seller behavior in the retail market as is buyer behavior. But if retail market sellers follow the lead of distressed property sellers and capitulate a bit on price, it could make for a much more robust spring and summer housing market rebound.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this story: Daren Blomquist at [email protected]
To contact the editor responsible for this story: Brena Nath at [email protected]
In my last market outlook for HousingWire, published in January, I offered two predictions for the early 2023 retail housing market based on forward-looking Auction.com bidding behavior from the fourth quarter of 2022:
A home price correction nationwide and in the majority of major markets
Home sales volume bottoming out
While both predictions have played out in large part (more on that below), bidder behavior on Auction.com in the first quarter turned a sharp corner, indicating a robust rebound on the horizon for the retail housing market. While it’s not as clear how long-lasting the rebound will be, it does still provide some much-needed good news for the spring and summer housing market.
Before diving into more specifics about what Auction.com bidder behavior is predicting for the next three to six months, a quick detour on why auction bidder behavior is a reliable forward-looking indicator for the retail housing market and how that proved to be the case for bidder behavior in Q4 2022 accurately foreshadowing retail market trends for Q1 2023.
A look back: The early 2023 housing slowdown
Bidding behavior on the Auction.com platform provides one of the best barometers of the retail housing market because the success and livelihood of these bidders depends heavily on them accurately anticipating what the retail market will look like in the next six months. These buyers are primarily local community developers who purchase distressed properties and then resell or rent those properties on the retail market following rehab — a process that typically takes about six months.
Auction.com bidding behavior turned sharply more conservative in the second half of 2022, particularly in the fourth quarter, indicating a mild home price correction of less than 5% nationwide in early 2023.
That mild correction has played out, with an emphasis on mild. The national median home price decreased 1.7% in April 2023, according to the National Association of Realtors (NAR). April was the third month with a year-over-year decline in national home prices, and home prices in March were down 9% from the peak in June 2022.
Data from NAR also shows a home price correction in nearly one-third of the 221 markets it tracks in the first quarter of 2023. While not the majority of markets that Auction.com bidder behavior was predicting, the NAR data still shows the corrections were quite widespread, including in major markets like San Jose, California (down 13.7% year-over-year); Seattle, Washington (down 6.3%); Salt Lake City, Utah (down 6.1%); Denver, Colorado (down 3.9%); and New York (down less than 1%).
Lastly, the NAR data from the first quarter also proved out the second prediction based on Auction.com bidding behavior in Q4 2022: a bottoming out of home sales volume. Annualized existing home sales volume dropped to a pandemic low of 4 million in January, but volume rebounded to 4.6 million in February and was at 4.3 million in April.
This article is part of our ongoing 2023Housing Market Forecast series. After this series wraps, join us on May 30 for the next Housing Market Update Event. Bringing together some of the top economists and researchers in housing, the event will provide an in-depth look at the top predictions for this year, along with a roundtable discussion on how these insights apply to your business. To register, go here.
A look forward: A mid-2023 housing rebound
Enough about how well auction bidder behavior predicted retail market trends in early 2023. What is it predicting for the next six months?
Bidder demand at foreclosure auction turned a sharp corner higher in the first quarter, both in terms of quantity demanded and price demanded. This indicates that home price appreciation will likely rebound back into positive territory in the second and third quarters of 2023.
The quantity demanded metric comes from online saves per property brought to auction. This saves-per-property metric had fallen to a two-year low in Q4 2022 (although it was still well above pre-pandemic levels). But it rebounded 17% in the first quarter, indicating that bidders were starting to open up their buy box a bit after shrinking it rapidly in the face of skyrocketing mortgage rates in the latter part of 2022. Those mortgage rates have stabilized in early 2023 helping to give buyers more confidence and certainty.
The price demanded metric is the winning bid divided by the estimated “after-repair” property value. This price demanded dropped sharply in the latter part of 2022, falling to a pandemic low of 53% in Q4 2022. That drop reflected bidders building a bigger margin into their acquisition pricing in anticipation of softening home prices. But the price demanded rebounded to 54% in the first quarter, an indication that bidders were less concerned about a price slowdown or correction going forward.
It’s important to note that, despite the quarter-over-quarter drop, the foreclosure auction price demanded in Q1 2023 was still well below the when the pre-pandemic average of 60% in 2019. Bidders are still not as bullish about home price appreciation as they were back in 2019.
But they are buying more, with the foreclosure auction sales rate — the percentage of properties available for auction that sell — jumping five percentage points in Q4 2023 from a three-year low in Q4 2022.
Seller pricing caveat
This rising sales rate provides evidence that sales volume in the retail market will continue to rise off its anemic annual pace of 4.0 million in January 2023 — with one important caveat: that home sellers also adjust pricing given the market reality of 6-plus percent mortgage rates for the foreseeable future.
Part of the increase in sales rate at foreclosure auction was thanks to buyers willing to deflate their purchase discount cushion a bit. But part of it was also thanks to sellers willing to listen to the market and adjust pricing lower in response.
The average credit bid – the minimum amount the foreclosing lender is willing or able to accept to sell the property – dropped to 51% of estimated after-repair property value in the the fourth quarter of 2022 and stayed there for the first quarter of 2023. That 51% pricing by sellers was a more than five-year low.
Seller behavior at foreclosure auction is not as predictive of seller behavior in the retail market as is buyer behavior. But if retail market sellers follow the lead of distressed property sellers and capitulate a bit on price, it could make for a much more robust spring and summer housing market rebound.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this story: Daren Blomquist at [email protected]
To contact the editor responsible for this story: Brena Nath at [email protected]
After a five-week stretch of declines, mortgage rates ticked up this week, sending ripples of dread through an already shaky spring market.
For the week ending April 20, rates for a 30-year fixed-rated loan averaged 6.39%, up from last week’s 6.27%, according to Freddie Mac.
For context, current mortgage rates are lower than the 6.48% that kicked off the year. But they’re still a whole lot higher than the 5.11% enjoyed by homebuyers this same week in 2022.
These ups and downs have put many homebuyers in a panic over whether it’s wise to buy now or wait. And that’s just one of many problems raising their blood pressure today.
To help both homebuyers and sellers stay one step ahead of today’s rapidly evolving spring housing market, we’ll break down the latest real estate statistics in this installment of “How’s the Housing Market This Week?”
Home prices are still inching up
In addition to contending with rising mortgage rates, homebuyers must also grapple with climbing home prices.
In March, homes were listed for a median price of $424,000. And for the week ending April 15, listing prices grew by 2.5% compared with a year earlier.
“Home prices are climbing as they typically do in the spring. However, momentum continues to dissipate,” Realtor.com Chief Economist Danielle Hale noted in her weekly analysis. In fact, this week’s growth is the slowest she’s seen since May 2020.
“Home prices are likely to go up from month to month through the summer, as they usually do,” she predicts. “But the jumps will be smaller than we saw in 2022.”
In other words, homebuyers will have to deal with slightly higher home prices, but nothing nearly as bad as the runaway sticker shock they experienced last summer. Nonetheless, when you combine these prices with today’s higher mortgage rates, the picture is still grim.
For homebuyers who put 20% down on a typical house, their mortgage payments will now amount to $600 or more per month than last year.
“Home prices have stabilized somewhat, but with supply tight and rates stuck above 6%, affordable housing continues to be a serious issue for many potential homebuyers,” Freddie Mac’s chief economist Sam Khater noted. “Unless rates drop into the mid-5% range, demand will only modestly recover.”
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Watch: 6 Crucial Tips for Bringing Down Your Mortgage Rate
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New listings are still down
Even though homebuyers are coughing up hundreds more per month for a house, the pickings are slimmer than ever.
Although housing inventory is 44% higher for the week ending April 15 than a year earlier, many of these listings are stale and have been stuck on the market 16 days longer than this same period last year. This means that homebuyers have likely seen and passed over a lot of these options already.
Meanwhile, fresh real estate listings just entering the market have been dwindling every week for the past 10 months, and continued downward by 5% for the week ending April 15.
The reason so many homeowners are reluctant to list right now is that many are also buyers who don’t want to trade in their current low-interest mortgage for today’s higher rates.
“Inventory is likely to continue to be a problem, with 82% of those looking to buy and sell feeling ‘locked in’ by their current low mortgage rate,” says Hale.
What’s more, she predicts that this sentiment is “unlikely to change much with current mortgage rates more than 2 percentage points above the rates a majority of homeowners currently have.”
How high rates are strangling the spring market
Ironically, these rising mortgage rates have hit right at what’s been deemed the best week to sell of the entire year. Realtor.com data shows that from April 16 to 22, homes typically earn $8,400 more than they would in a typical week.
Yet unless mortgage rates dip, it will be hard to persuade homeowners to list and make the most of this seasonal high point.
However, there is one group of homeowners who are somewhat immune to the vicissitudes of mortgage rates that gives economists hope of getting the spring market moving.
“Older seller-buyers, who are likely to have a smaller mortgage balance and greater equity, are less likely to report feeling locked in and also more likely to report that they need to sell anyway,” points out Hale. “This is likely to mean that older households will continue to play a prominent role on both sides of the home sale transaction in 2023.”
And let’s also remember the comforting words of Lawrence Yun, chief economist for the National Association of Realtors®: “Calmer inflation means lower mortgage rates, eventually. Mortgage rates slipping down to under 6% looks very likely toward the year’s end.”
Homes in Centreville, Maryland, US, on Tuesday, April 4, 2023.
Nathan Howard | Bloomberg | Getty Images
Mortgage demand from homebuyers has been erratic to say the least during the usually busy spring housing market. That is likely because today’s buyers are hypersensitive to mortgage rates, which have been fluctuating widely week to week but which are still considerably higher than they were a year ago. Now, several bank failures are starting to make it more difficult even for wealthier buyers.
Mortgage applications to purchase a home dropped 2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand was 32% lower than the same week one year ago.
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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.50% from 6.55%, with points remaining at 0.63 (including the origination fee) for loans with a 20% down payment. The rate was 5.36% the same week one year ago.
The average rate for jumbo loans (higher-balance mortgages) was slightly lower at 6.37%, but that spread has been shrinking for the last few months. Jumbo loan rates had been far lower than conforming because banks generally hold these loans on their balance sheets, as Fannie Mae and Freddie Mac don’t purchase them. Fannie and Freddie have imposed higher fees since the Great Recession, so their rates are now higher.
“The jumbo-conforming spread continues to narrow, an indication that there is reduced lender appetite for jumbo loans following the recent turmoil in the banking sector and heightened concerns about liquidity,” wrote Joel Kan, MBA’s deputy chief economist, in a release. “The spread was 13 basis points last week, after being as wide as 64 basis points in November 2022.”
Applications to refinance a home loan increased 1% from the previous week but were 51% lower than the same week one year ago. The refinance share of mortgage activity rose to 27.2% of total applications from 26.8% the previous week.
Mortgage rates were volatile to start this week, with more concern over bank failures and a much-anticipated Federal Reserve meeting Wednesday. The Fed is expected to raise its benchmark interest rate by a quarter point, but it will be the commentary from Fed Chairman Jerome Powell that will have the greatest impact on the bond market, and consequently mortgage rates.
After falling 0.8% in March, housing starts were back up again in April, according to a report released Wednesday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).
Home starts checked in at an estimated annual pace of 1.401 million in April, up 2.2% month over month. Despite this increase, housing starts were down 22.3% on a yearly basis.
The monthly uptick in starts came via increases in both single family (1.6%) and multi-family (5.2%) building, with paces of 846,000 homes and 542,000 homes, respectively.
“Single-family housing starts have improved modestly alongside cautious builder optimism, as homebuilder sentiment inched into positive territory in May, increasing for the fifth consecutive month.” Odeta Kushi, the deputy chief economist at First American, said in a statement.
Industry economists attribute the uptick in housing starts and builder confidence to the low level of existing home inventory.
“Despite elevated mortgage rates and a slower-than-typical spring housing market, homebuilders are feeling confident about the outlook for new housing demand because the inventory of existing homes for sale remains very constrained,” Lisa Sturtevant, the chief economist of Bright MLS, said in a statement.
“In April, the inventory of existing homes for sale totaled just 980,000, far lower than the long-term average of about 2.3 million homes.”
While housing starts were up in April, the number of permits issued was down 1.5% month over month to a pace of 1.416 million, thanks to a 9.7% monthly decrease in the number of multi-family permits issued to 502,000. However, there was good news for single-family home builders as the pace at which permits were issued rose 3.1% from March to 855,000.
Year over year, the number of permits issued was down 21.1%.
Compared to the building boom in 2021 and 2022, “new construction has slowed considerably,” said Nicole Bachaud, Zillow’s senior economist. “However, the permits pulled, and units started a year ago are making their way to the market now with completions up over last year, adding some new inventory to the market.”
Housing completions were also down in April, dropping 10.4% from the month prior to a pace of 1.375 million. However, on a yearly basis, completions were up 1.0%. While single-family completions were down 6.5% month over month to a pace of 971,000, multi-family completions were up 5.2% to 400,000.
With existing home inventory so low, builders are working to get more new homes on the market.
“Existing-home inventory remains limited as the majority of homeowners are rate-locked into their homes. As a result, prospective buyers may turn to the new-home market. If finding an existing-home is difficult, a new home at the right price is a good substitute,” Kushi said. “While new homes have historically made up approximately 1% of total inventory, that share has increased to nearly 30% in recent months. Estimates of the nation-wide housing shortage vary, but tend to range from between 3.5 million to 5.5 million housing units. This implies that even if all units under construction came to market tomorrow, we’d still be underbuilt by millions of units. As such, new supply of housing is more likely to ease than erase the national housing shortage, although this will vary by location.”
As builders work to fill this void, they are still faced with multiple challenges.
“Builders continue to face obstacles, including high material costs and a lack of labor,” Sturtevant said. “One of the biggest challenges are local regulations that often limit the amounts of types of housing that can be built. Unless localities allow more residential development, housing demand will outstrip supply and housing affordability will continue to be a challenge.”
Regionally, housing starts were up month over month in the Midwest (32.6%) and the West (34.6%) but were down 23.4% in the Northeast and 6.3% in the South.
On a yearly basis, homebuilders’ housing starts were down in all four regions, with the West posting the largest decrease at 25.5%.
The rise of active listings in this spring housing market reminds me of a zombie slowly rising from its grave. Yes, we found the seasonal bottom for housing inventory on April 14, but this year’s rise in active listings has been tepid at best.
Here’s a quick rundown of the last week:
Total active listings grew 662 weekly, and new listing data is still trending at all-time lows.
Mortgage rates fell last week as we started the week at 6.65% and got as low as 6.49% to end the week at 6.55%.
Purchase application data rose 5% weekly as the streak of lower rates impacting the weekly data continues.
Weekly housing inventory
Well, the best thing I can say for spring 2023 inventory is that we found the seasonal bottom a few weeks ago. On the positive side, we’re at least seeing inventory rise — some had feared that because new listing data was trending at all-time lows, we wouldn’t see a spring increase in the active listings at all. This doesn’t appear to be the case for 2023.
However, new listing data is very seasonal and we have less than two months left before it starts declining again. I had hoped we would see more active listings before that period, but unfortunately that’s not the case. In fact, this data line has been absolutely crazy.
How crazy?
Last year, from April 22 to April 29, total single-family inventory grew by 16,311 in that one week. This year, from the seasonal bottom on April 14 to now — a whole month — total active inventory has only grown by 14,913.
Weekly inventory change (May 5-12): Inventory rose from 419,725 to 420,381
Same week last year (May 6-13): Inventory rose from 300,481 to 312,857
The inventory bottom for 2022 was 240,194
The peak for 2023 so far is 472,680
For context, active listings for this week in 2015 were 1,108,932
According to Altos Research, new listing data rose weekly but is still trending at all-time lows this year. When you consider that a home seller is a natural homebuyer as well, you can see why the housing market broke after mortgage rates went on a roller coaster last year. Mortgage rates went above 6.25%, then declined back to 5% then spiked back to 7.37%. We have not been able to recover from that mortgage rate spike and it has bled into 2023 as well.
Last year, new listing data, while trending at all-time lows, was at least rising year over year. That is no longer the case after the second half of 2022.
New listing weekly data for this week in May over the past three years:
2023: 62,382
2022: 73,515
2021: 71,191
New listing data from previous years for the same week, to give you some historical perspective:
2017: 90,112
2016: 82,621
2015: 98,436
The NAR data goes back decades and it illustrates just how hard it’s been to get the total active listings back to the historical range of 2 million to 2.5 million. The next existing home sales report comes out this week and we should see an increase in active listings, which have been stuck at 980,000 active listings over the last three months.
NAR: Monthly active listings
NAR: Total active listing data going back to 1982
I often get asked about the big difference between NAR and Altos Research inventory data. This link explains the difference. Overall, inventory data tends to move together, even if different sources are working with other numbers and have a different methodology.
The 10-year yield and mortgage rates
For 2023, one of the most important economic storylines has been the 10-year yield refusing to break below the critical levels I have talked about for months — the level between 3.37%-3.42%. I believed this level was going to be so hard to break under that I named it the Gandalf line in the sand. No matter how crazy things have gotten in 2023, the 10-year yield only broke it once, at the height of the banking crisis. That didn’t last long as we headed right back higher.
As you can see in the chart below, that line in the sand has been tested many times.
When I talk about mortgage rates, it’s really about where I feel the 10-year yield will go for the year. In my 2023 forecast, I said that if the economy stays firm, the 10-year yield range should be between 3.21% and 4.25%, equating to 5.75% to 7.25% mortgage rates.
Now if the economy gets weaker, meaning the labor market sees a noticeable rise in jobless claims, then the 10-year yield should break under 3.21%, going all the way to 2.72%. This will take mortgage rates under 6%, and if the spreads return to normal, this can get us below 5% mortgage rates again. Yes, I said below 5% again.
Can you imagine the housing market at that point? We would have much more stability.
However, for that to happen, jobless claims would need to rise to 323,000 on the four-week moving average. We did have a big jump in jobless claims last week. However, this data line can have some odd quirks week to week, so focus more on the trend and the four-week moving average rather than one week’s data.
From the St. Louis Fed: “Initial claims for unemployment insurance benefits increased by 22,000 in the week ended May 6, to 264,000. The four-week moving average also rose to 245,250.”
Last week, mortgage rates didn’t move much, but as the year goes on, we will be tracking more and more economic data to get clues on the economic cycle and where mortgage rates will be heading.
Purchase application data
The dynamics of the U.S. housing market changed starting Nov. 9, 2022, when the purchase application data began to react more positively as mortgage rates fell. Since that time, making some holiday adjustments to the data, we have had 17 positive weekly prints versus seven negative prints. Year to date, we have had 10 positive prints versus seven negative prints.
Last week, the weekly data showed a positive 5% print, while the year-over-year data shows a 32% year-over-year decline.
I view this data line as just a stabilization of the housing demand data, coming off a waterfall dive in 2022. However, this stabilization is critical because of what it has done: It has changed the housing dynamics.
When housing demand collapsed last year, the low inventory didn’t provide a big shield against pricing getting much weaker. Pricing in the second half of the year was going negative month to month, of course, from an overheating start in 2022. Starting from Nov. 9, the entire housing dynamics changed from demand collapsing to demand stabilizing.
This explains pricing getting firmer in 2023 due to the low inventory environment. Purchase apps look out 30-90 days before they hit the sales data, so we don’t have the sharp recovery data we saw during the COVID-19 recovery. However, we do have a good stabilization story here today.
I traditionally weigh this data line after the second week of January to the first week of May, and now that we are in the second week of May, I would say the 2023 purchase apps data is slightly positive, with stabilization for sure, just not a booming mortgage demand market with mortgage rates still over 6%.
The week ahead: Big housing data coming up
We have a jam-packed week with economic data, especially for housing. We have the builder’s confidence data, housing starts and existing home sales. Monday, we also have the New York Fed quarterly credit and debt update. Those charts are my favorites as they show how credit stress in the U.S. today doesn’t look like anything we saw in the run-up in 2008.
Since the foreclosure process has started again, we should be working our way back up to pre-COVID-19 levels. However, 30, 60, and 90-day lates are near all-time lows, and it took many years to build up the credit stress we saw from 2005 to 2008, before the job-loss recession.
Retail sales come out on Tuesday, which can move the bond market depending on what the report shows. As the year progresses, all these reports will give us more clues to see where the economy is heading. That’s critical since economic data can move the bond market and what can move the 10-year lower or higher drives mortgage rates as well. If mortgage rates head lower, we could see inventory drawn down faster during the seasonal decline period of fall and winter.