The Mortgage Bankers Association (MBA) released its weekly application survey results on Wednesday. The highlight was a 12.43% increase in purchase applications from the previous week. That brought the purchase index to the highest levels since February. As has been and continues to be the case, there's an obvious counterpoint to any of these periodic surges: the broader context. In other words, yes, these are the highest levels since February, but even if we go back to February 2023, the range since then is historically low and sideways. With that in mind, we're equipped to digest the refinance index with a grain of salt. At first glance, we might lament the evaporation of the recent surge in September. But the broader context suggests that we can simply be in a perpetual state of lamenting refi demand for more than 2 years now. Other highlights from this week's application data (current week change % vs previous week): Refinance share of total apps 38.8 vs 41.0 FHA share of total apps 16.0 vs 16.6 VA share of total apps 12.4 vs 13.6 Week over week change in interest rates Conforming 30yr fixed 6.86 vs 6.90 Jumbo 30yr 6.97 vs 7.03 FHA 30yr 6.61 vs 6.68
Even on a good day, the Census Bureau's New Residential Sales report has a notoriously wide margin of error. But today's 12.8% margin of error isn't even the best counterpoint to today's ostensibly alarming 17.3% month over month decline. After all, that would still be at least a 4.5% decline. Another counterpoint--also not remotely the best one--would be that home sales continue to operate in the same sideways range that's been intact for nearly 2 years now: So what is the best "yeah but?" It's very simple, and it should become clear when you take a look at the geographical distribution of this month's losses. For those that gloss over at the sight of big tables of numbers, the critical observation here is whopping 27.7% decline in home sales in the South, as well as the fact that the outright number of sales is far below any other month going back to October 2023. In fact, every other region has at least 3 other months in the past 12 that have come in lower. Connecting the dots, many of us will remember that October brought the uniquely disruptive category 5 Hurricane Milton. Long story short, it would have been a surprise NOT to see a massive drop in home sales activity in the south in October. Really, the only curiosity here is that economic forecasters didn't have weather effects priced into their models.
There are two key, big picture home price indices in the U.S. They come out every month, but with a 2 month lag. That means we're getting September's prices today. The two indices are: S&P Case Shiller, which focuses on a smaller data set that tends to detect trends sooner, but also in a more volatile way FHFA, a U.S. government agency that ultimately captures about as many transactions as could possibly be captured, thus producing the broadest and most authoritative update on home prices. For this reason, it serves as the foundation for updating the annual conforming loan limit. What happened with September's data? The more volatile Case Shiller data declined by 0.3% in September while FHFA's broader data set showed 0.7% growth. These discrepancies aren't uncommon. Moreover, both are reflecting a mid-4% rate of appreciation in annual terms. What are the implications for conforming loan limits, and what even is a conforming loan limit (CLL)? The CLL is the highest loan amount that can be guaranteed by housing agencies Fannie Mae and Freddie Mac. Their guarantee allows for several advantages ranging from standardized automated underwriting capabilities to generally lower interest rates. There is a base loan limit, but some of the most expensive counties can be 150% of that limit. The previous loan limit was $766,550.
As you may have gleaned from our coverage of new home sales, construction, builder confidence, and mortgage apps recently, there are only so many ways to describe the same phenomenon. Today's report on October's Existing Home Sales from the National Association of Realtors (NAR) is just another player on that same stage. Like the others, it's languishing at the lowest levels in a long time and cutting a broadly sideways path. Like the others, we can tie the big drop in 2022 to the big rate spike in 2022. After the problematic time frame highlighted in the chart below, little has changed for sale or rates in the bigger picture. This particular data series has one other interesting nuance and it has to do with inventory levels. Existing home inventory has a very reliable pattern of peaking in the summer and bottoming out around the new year. 2023's inventory peaked much later in the year and now this year, the peak has yet to show up! What should we make of this? Are more people listing their homes or are fewer people buying the homes that are listed? Turning to Redfin's housing data center (which is not the same data set as the Existing Homes data, but may provide some insight), the suggestion is that the sales slowdown has more to do with the inventory building. The chart below shows that 2024's new listing levels closely match 2023's up to this point in the year. Other highlights from this month's NAR Existing Sales report:
First thing's first, mortgage applications increased last week, both for purchases and refinances! It was the first improvement for refi demand since mid September, when rates were well into their lowest levels in more than 2 years. Top tier conventional 30yr fixed rates were being quoted at around 6% at the time, but moved rapidly up to 7%+ in the first 3 weeks of October. The resulting drop in refi demand was as logical as it was unfortunate, and it didn't really let up until 2 weeks ago. Since then, last week saw only a microscopic decrease which, in turn, paved the way for this week's microscopic increase. In the bigger picture, the refinance index remains in the lowest territory in decades. The Purchase Index is actually in a similar boat. In fact, we'd need to go even deeper into the past to see demand at current levels. The key difference is that there wasn't any interesting rate-driven bump in the past few months. Purchases apps simply ground to a halt by late 2023 and haven't done much since then. Other highlights from MBA's weekly application update: Refi share of total activity: 41%, up from 39.9 previously FHA share: 16.6% vs 16.0 previously VA share: 13.6% vs 13.3 previously Average contract rate (30yr fixed) 6.90 vs 6.86 Orig/Points up to 0.7 from 0.6 Jumbo rates were 0.13% higher than conventional and FHA rates .22% lower
The most common interval for scheduled economic data is "monthly." That means that things like inflation, sentiment, job counts, unemployment, retail sales, and many other economic metrics are updated and released every month, even when nothing very interesting is happening. On that note, there are several regularly scheduled housing related reports. This month's installment of New Residential Construction is today's example and, as you may have guessed, nothing very interesting is happening. At a glance details: Housing Starts (1st phase of actual construction) 1.311 million annual pace vs 1.33m forecast, 1.353m previously Building Permits 1.416m vs 1.430m forecast, 1.425m previously Neither measurement stands out on a longer term chart. Both have dialed back from the long-term highs seen between late 2020 and early 2022, but both remain in strong territory relative to 2019. This is the first way to view the slowdown in construction. The other way to view the slowdown is to focus solely on the slowdown in greater detail and attempt to connect it to another variable. That ends up being fairly easy if we merely consider the massive rate spike that coincided with the rapid contraction in building permits. In not so many words, construction metrics have been bouncing around their current levels ever since mortgage rates spiked to the 6-8% range. This isn't to say that interest rates are the exclusive reason for the slowdown, but the rate spike coincides with other headwinds. Those include things like affordability, labor costs, machinery/material costs, and financing costs for builders.
Historically low interest rates may not have guaranteed historically high levels of housing activity, but exceptionally high rates have definitely muted activity in a measurable way. We've cataloged this incessantly when it comes to refinance activity, but there's a correlation with home sales as well. The Housing Market Index (HMI) from the National Association of Homebuilders is just another way to see it. A de facto measurement of builder confidence/sentiment, the HMI had been flying high (all time highs, actually) shortly after the initial covid lockdowns. At the time, rates were at all-time lows and pent-up buying demand was being unleashed. Notably, that level of confidence was achieved despite housing starts only being about 2/3rds of their 2005 peak. Just as notable, as seen in the chart above, housing starts merely fell back to levels there were still higher than most of 2019 (a time when builder confidence was fairly close to all-time highs). So why would builder confidence swoon so much more than the activity level in the homebuilding sector would suggest? If the title and intro wasn't a giveaway, we'll make it clear: RATES! We could review a chart of rates compared to builder confidence, but that would look like an ink blot test with each line moving in opposite directions. Instead, the chart below uses the price of mortgage-backed-securities (MBS)--the bonds that dictate mortgage rates. The convenience of MBS in this context is that they'll move exactly like mortgage rates, but in the inverse (thus allowing us to more easily see the correlation between rate movement and the confidence swan dive).
It's not entirely clear if it's a can or the proverbial bucket. All we know is that mortgage applications have been kicking it. There's no great way to make the news interesting now that loan volume has done what anyone would have expected it to do, given the the rapid rise in rates over the past 6 weeks. Up until that point, there had been a noticeable uptick in refinance applications. That uptick has now been fully erased, although this week didn't decline nearly as much as the past several. In the bigger picture, that uptick wasn't anything special considering the starting point was as low as it's been in decades. To whatever extent refi apps have been historically muted, purchase applications have been reliably boring. Little changes on that front from week to week. The bigger picture is more interesting here, perhaps, as it shows the rapid shift from a longstanding trend of steady improvement to the new reality of exceptionally light purchase activity. Other highlights include: Refis accounted for 39.9% of the total, same as last week FHA accounted for 16.0%, up from 15.5% VA accounted for 13.3%, up from 12.5% Survey rates were up to 6.86 from 6.81 (30yr fixed) origination/points decreased to 0.6 from 0.68 FHA rates fell to 6.69 from 6.75 Jumbo rates rose to 7.00% from 6.98%
In today's weekly mortgage application survey from the MBA, the average 30yr fixed mortgage rate only rose from 6.73 to 6.81%. Meanwhile, daily average rates are already back over 7%. Any way you slice it, rates have been rising quickly and the fallout is completely unsurprising when it comes to refinance applications. For context, here's how the past year fits in the bigger picture: Refinance applications wax and wane with interest rates. The present environment is particularly restrained by the fact that so many people refinanced to such low rates in 2020-2022. At the moment, the only group of borrowers with a rate-based refinance incentive are those who purchased or refinanced in late 2023 when rates were near 8%. Purchase applications are much more even-keeled, but also not loving the current rate/affordability environment. Other highlights from this week's survey: Refinances accounted for 39.9% of total applications, down from 43.1% last week Average loan size fell below $300k FHA loans were 15.5% of total vs 16.4% last week VA loans were 12.5% of total vs 14.6% last week Conventional rates were 6.81 up from 6.73 vs jumbo rates at 6.98 (up from 6.77... a much bigger jump) ARM rates fell from 6.20 to 6.05, but upfront costs increased from 0.59 to 0.84.
Housing was chugging right along in early 2020, then covid happened. Housing experienced lots of unexpected volatility with the most important development being a huge increase in demand and prices... at first. Once rates began skyrocketing (relatively) and the frenzy began to subside, home sales numbers tanked to the weakest levels since the Great Financial Crisis by the end of 2022. They've been drifting and bouncing around near those same levels ever since. Bigger picture for context: In other words, this data series isn't worth too much discussion until it exits this holding pattern. For those determined to pick out potentially interesting anecdotes, feel free to sort through the following: Prices rose 3.0% year over year. It's the 15th straight month of increases Inventory has been growing faster than sales have been falling First time buyers accounted for 26% of total, matching the all-time low, but not a crazy drop from 2023's average of 32% All cash sales accounted for 30%, up from 26% last month.
