October saw contracts to purchase existing homes fall for the fifth straight month. The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI) lost another 4.6 percent during the month, declining from 79.5 in September to 77.1. This is 37.0 percent lower than its reading in October 2021 when it hit a recent peak of 125.2. It has posted only one increase (0.7 percent) since then. [pendinghomesdata] “October was a difficult month for home buyers as they faced 20-year-high mortgage rates,” said NAR Chief Economist Lawrence Yun. “The West region, in particular, suffered from the combination of high interest rates and expensive home prices. Only the Midwest squeaked out a gain. The upcoming months should see a return of buyers , as mortgage rates appear to have already peaked and have been coming down since mid-November.” Contract signings were lower in three of the four major regions compared to the prior month. They were significantly lower in all four regions on an annual basis. The index for the Northeast lost 4.3 percent from its September level. At 68.7, it was 29.5 percent lower than a year earlier. The Midwest index rose 3.3 percent to 83.5 but has declined 32.1 percent since October 2021. The South’s reading, 90.6, was 6.4 percent lower for the month and down 38.2 percent from the prior year. The PHSI in the West sank 11.3 percent to 55.6. This was down 46.2 percent year-over-year.
Thanksgiving had its usual effect on the mortgage market during the week ended November 25, although the third week of easing interest rates helped move the volume of purchase mortgage applications higher. The Mortgage Brokers Association (MBA) said its Market Composite Index, a measure of application volume, decreased 0.8 percent on a seasonally adjusted basis from the prior week. Results were adjusted to account for the holiday-shortened week. The unadjusted index dropped by 33 percent. The Refinance Index decreased 13 percent from the previous week and was 86 percent lower than the same week one year ago. Applications for refinancing constituted 26.1 percent of the total, down from 28.4 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index gained ground for the fourth straight week , increasing 4 percent from one week earlier. The unadjusted Purchase Index was 31 percent lower than the prior week and down 41 percent year-over-year. [purchaseappschart] “Mortgage rates declined again last week, following bond yields lower. The 30-year fixed mortgage rate decreased to 6.49 percent and has now fallen 57 basis points over the past four weeks,” Joel Kan, MBA’s Vice President and Deputy Chief Economist said. Additionally, mortgage rates for most other loan types declined,” “The economy here and abroad is weakening, which should lead to slower inflation and allow the Fed to slow the pace of rate hikes,” he continued. “Purchase activity increased slightly after adjusting for the Thanksgiving holiday, but the decline in rates was still not enough to bring back refinance activity. Refinance applications fell another 13 percent, and the refinance share of applications was at 26 percent. Both measures were at their lowest levels since 2000.”
If you're just here for the conforming loan limit news, $726,200 is the number for 2023. Does this mean no one can get a mortgage for more than $726,200? No. The conforming loan limit is the maximum amount that can be guaranteed by Fannie Mae and Freddie Mac (the government-sponsored enterprises or GSEs). That guarantee has advantages in terms of the loan approval process and interest rates. There are plenty of mortgage options for higher amounts or that are not guaranteed by the GSEs, but conforming loans account for a vast majority of new mortgages. $726,200 is the base amount. Higher cost areas have access to higher limits based on the average home prices in that area. The county by county limits are listed separately, HERE. The highest tier is $1,089,300 (base loan limit x 1.5). Where do these numbers come from? The Federal Housing Finance Agency (FHFA) is the regulator of the GSEs. It publishes various home price data. Once the data is in for the 3rd quarter (typically by late November), it is compared to the 3rd quarter of the previous year and home prices are adjusted by the corresponding amount. In situations where home prices fall, the limit does not fall, but it will not rise again until home prices move back above the levels associated with the previous limit. For instance, let's imagine the loan limit was $700k, but prices fell enough to drop it to $600k. The limit would remain at $700k year after year (even if prices were rising) until prices got back above $700k.
Mortgage application volume increased for the second consecutive week as interest rates continued to decline. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that volume, was 2.2 percent higher during the week ending November 18 than the prior week on a seasonally adjusted basis and up 10 percent before adjustment. MBA had adjusted its data for the week ended November 11 to account for the Veterans’ Day holiday. The Refinance Index increased 2 percent from the previous week and was 86 percent lower than the same week one year ago. The refinance share of mortgage activity increased to 28.4 percent of total applications from 27.6 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index chalked up its third consecutive week of improvement, increasing by 3 percent. The unadjusted version gained 9 percent compared with the previous week and was 41 percent lower than the same week one year ago. [purchaseappschart] “The 30-year fixed-rate mortgage fell for the second week in a row to 6.67 percent and is now down almost 50 basis points from the recent peak of 7.16 percent one month ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The decrease in mortgage rates should improve the purchasing power of prospective homebuyers, who have been largely sidelined as mortgage rates have more than doubled in the past year. As a result of the drop in mortgage rates, both purchase and refinance applications picked up slightly last week. However, refinance activity is still more than 80 percent below last year’s pace .”
The state of the housing market in 2022 is well known by now. The sharpest rate spike in 40 years to the highest rates in 20 years combined with the overvaluation from 2 years of brutally fast appreciation to create a rapid cooling in demand and, more recently, prices. Slightly less obvious to those outside the industry is the extreme and ongoing inventory crunch. Units available for sale continue treading water at record lows. This is noticeably different from the most recent example of plummeting sales (2006-2008) when inventory began stacking up almost immediately. We can get a slightly more focused look at the "sales vs inventory" metric by simply subtracting one from the other. The following chart shows sales vs inventory. This is a better gauge of the contraction in sales. In this light, sales are right back in line with pre-covid levels as opposed to back at 2012's levels. None of the above is intended to "cheer-lead" a gloomy housing situation, because it's certainly not upbeat right now. Rather, the only goal is to adjust the level of gloom to acknowledge the abysmal inventory conditions. Other highlights from today's data: Time on market: 21 days vs 19 days previously First time buyers = 28% of the market, 29% previously Cash sales = 26% up from 22% previously Investors bough 16%, up from 15% previously Comments from NAR Economist Lawrence Yun: "Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers. In October, 24% of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8%."
There aren't many ways to make the Census Bureau's New Residential Construction report exciting, and there are zero ways to frame it in a positive light (unless you want the old "it can only go down for so long before it comes back up"). So let's just get through this and try to pluck out one or two interesting tidbits. First off, if we're just looking at the two main headlines in the data (housing starts and building permits) in the context of the past 10 years, things actually could be quite a bit worse. Sure, there's been a massive contraction from the peak, but the peak was driven by ravenous, temporary demand. It's no mystery that housing-related metrics have suffered in an environment dominated by the fastest rate spike in 40 years to the highest levels in 20 years. But not every housing metric is suffering. Take "units under construction" for instance. It just hit a new record. Is that a good thing or a bad thing? Based on the previous spikes (1978, 1986, 2006), it's arguably not great, but the big difference between now and then is that we only have a big spike in units under construction because housing completions haven't been keeping pace with housing starts and building permits. The build up of "under construction" units is increasingly a factor of the multifamily sector, which hasn't experienced the same drop as single family construction in terms of permitting. The NAHB has a telling chart in their coverage of single vs multi fam construction. It shows the build up of multi fam units under construction and the decline of single fam.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell another 5 points in November. NAHB said this measure of builder confidence in the new home market is now at 33 after 11 straight months of decline. The current reading is only 3 points higher than in April 2020 when the onset of the pandemic triggered a 42-point plunge. NAHB’s chief economist Robert Dietz said it is “Elevated interest rates, stubbornly high building material costs and declining affordability conditions that are pushing more buyers to the sidelines (and) continue to drag down builder sentiment.” Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI asks builders to describe their perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. All three HMI components posted declines in November. Current sales conditions fell 6 points to 39, sales expectations in the next six months declined 4 points to 31 and traffic of prospective buyers fell 5 points to 20. Looking at the three-month moving averages for regional HMI scores, the Northeast was down 6 points to 41, the Midwest dropped 2 points to 38, the South declined from 49 to 42 and the West posted a 5-point decline to 29.
Mortgage application volume increased on a seasonally adjusted basis during the week ended November 11 but declined sharply before adjustment. The Mortgage Bankers Association (MBA) further adjusted data from its Weekly Mortgage Applications Survey to account for the Veterans’ Day holiday. MBA said its Market Composite Index, a measure of mortgage loan application volume, gained 2.7 percent on a seasonally adjusted basis from one week earlier, but declined 10 percent before adjustment compared with the previous week. The Refinance Index decreased 2 percent from the previous week and was 88 percent lower than the same week in 2021. The refinance share of mortgage activity dipped to 27.6 percent of total applications from 28.1 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index rose 4 percent week-over-week, its biggest single-week gain since mid-June. It was, however, still down by 10 percent on an unadjusted basis and 46 percent from its level during the same week one year earlier. [purchaseappschart] “Mortgage rates decreased last week as signs of slower inflation pushed Treasury yields lower. The 30-year fixed rate saw the largest single-week decline since July 2022, dropping to 6.9 percent,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Application activity, adjusted to account for the Veterans Day holiday, increased in response to the drop in rates – driven by a 4 percent rise in home purchase applications. Purchase applications increased for all loan types, and the average purchase loan dipped to its smallest amount since January 2021. Refinance activity remained depressed, down 88 percent over the year. There is very little refinance incentive with rates so much higher than last year.”
The Mortgage Bankers Association (MBA) collects data on borrower eligibility (FICO, loan type, LTV, etc) and combines that with underwriting guidelines to determine whether mortgages are getting easier or harder to obtain. The result is the Mortgage Credit Availability Index (MCAI), and it fell to its lowest level since March 2013 today. Is this big news? Not entirely. The most recent update didn't constitute a major departure from the previous number with October falling 0.5% to an index value of 102. "Much higher mortgage rates and the worsening outlook for the housing market and economy are behind the continued tightening in credit availability,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Lenders continue to reduce their capacity and are eliminating some loan offerings, including certain types of refinance loan products and others that require less than full borrower documentation.” In terms of the sub-components, the conventional index declined by 1.5%, led by the jumbo sector whereas the government index declined only 0.5%. Here's a visual on how the subcomponents have fared over time: The MBA also offers an expanded historical series that provides context from the housing crisis. It's a great chart to discuss with people who are worried about some sort of mortgage meltdown reprisal.
The Mortgage Bankers Association (MBA) reports yet another decline in overall mortgage application volume during the week ending November 4. Applications for purchase mortgages did increase slightly, reversing a six-week downhill slide. MBA’s Market Composite Index, a measure of total application volume, was down another 0.1 percent on a seasonally adjusted basis from one week earlier and was 2 percent lower on an unadjusted basis. The Refinance Index decreased 4 percent from the previous week and was 87 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 28.1 percent from 28.6 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index gained 1 percent from one week earlier while the unadjusted Purchase Index was 2 percent lower. Application volume is now 41 percent lower than during the same week in 2021. [purchaseappschart] “Mortgage rates edged higher last week following news that the Federal Reserve will continue raising short-term rates to combat high inflation,” Joel Kan, MBA’s Vice President and Deputy Chief Economist said. “The 30-year fixed rate remained above 7 percent for the third consecutive week, with increases for most loan types. Purchase applications increased for the first time after six weeks of declines but remained close to 2015 lows, as homebuyers remained sidelined by higher rates and ongoing economic uncertainty. Refinances continued to fall, with the index hitting its lowest level since August 2000.”