Both of the major purveyors of home price indices have been in agreement for the better part of a year that the average home is appreciating between 4 and 5 percent per year. The FHFA House Price Index showed only a 0.1% uptick in February while the Case Shiller Home Price Index rose 0.7%. In annual terms, Case Shiller was at 4.5% and FHFA fell from 5.0 to 3.9%. In the bigger picture, these changes don't amount to much. Things get a bit more interesting when we examine the monthly movement. First off, and more by way of a general backdrop, the past few years have seen a bigger gap between highs and lows compared to the norms established between 2014 and 2019. The more interesting month-over-month development is highlighted in the next chart. Simply put, FHFA's index dropped to 0.1 from 0.3. That's not a big deal in and of itself, but the plot thickens when we consider the following 2 facts: These indices are not seasonally adjusted (i.e. they show typical seasonal price patterns when viewed in a month-over-month interval) February (the most recent month available, released this week) almost always coincides with FHFA's index topping out for the year and Case Shiller's index in the midst of its normal springtime upswing. True to form, Case Shiller (the orange line) is seeing the normal upswing, even if at a more muted pace. But FHFA fell near the lowest levels of the past 12 months instead of peaking.
Mortgage rates were in the process of falling by the end of last week, but they made additional headway during the first half of the present week. That means this week's mortgage application survey from the Mortgage Bankers Association (MBA) may be reflecting hesitation due to the elevated rates at the beginning of last week. The chart below shows the day to day rate movement (MND) during the survey week as well as the weekly survey rate (MBA). Mortgage rates are not perfectly correlated with mortgage application activity--especially for purchases. But the fairly quick rate spike in the early part of the week jives with the modest drops in both the refi and purchase indices from MBA. Both sets of application data are still higher than their average level from the past 2 years. MBA adds that demand for purchase applications "continues to be subdued by broader economic uncertainty and signs of labor market weakness," according to Joel Kan, MBA’s Vice President and Deputy Chief Economist.
As is the case for the monthly data on New Home Sales from the Census Bureau, the National Association of Realtors (NAR) Existing Home Sales report does not make for exciting news these days. It's not that the news is tragic or alarming either. It just sort of... is. Whereas New Home Sales have been able to hold sideways near their pre-covid highs, Existing Sales continue to languish near the lowest levels in decades. Apart from the great financial crisis in 2008-2010, you'd have to go back to 1995 to see lower levels. "Home buying and selling remained sluggish in March due to the affordability challenges associated with high mortgage rates," said NAR Chief Economist Lawrence Yun. "Residential housing mobility, currently at historical lows, signals the troublesome possibility of less economic mobility for society."
The Census Bureau released March New Home Sales data this week, and it was near the best levels seen since early 2022. Before you get too excited about that, a caveat is in order. Simply put, when it comes to housing market data, nothing has been more uneventful than new home sales over the past few years. The chart tells the story. It's tough to make an entire news article interesting when it comes to this data, so we won't waste your time. Instead, here are some bullet-pointed highlights that showcase some of the departures from the status quo (these are common, and they tend to come out in the wash in the longer term): Sales fell 22.2% in the Northeast region, but had risen just as sharply in the previous month. Sales jumped nicely in the South for the 2nd straight month (13.6% this time) and are now at their highest levels since April 2021. The South accounts for 483k of the 724k national total.
The National Association of Homebuilders (NAHB) and Wells Fargo publish the Housing Market Index (HMI) each month, otherwise known simply as "builder confidence." This month's index came out at the 2nd lowest level since late 2023. While that might sound dramatic, it's very much in line with the prevailing trend for this report. And while the chart above may make it seem like confidence is in the gutter, it's really only about halfway in the gutter in the bigger picture. There were some interesting details inside the report. Specifically, 60% of builders said that tariffs were already impacting prices or leading to announcement of impending price increases from some suppliers. The NAHB notes that tariff-related price increases currently average 6.3%, or $10,900 on an average home.
One would think that the pace of new residential construction largely mirrors the pace of filings for building permits. And while that is generally true in the bigger picture, there can be noticeable discrepancies month to month. This week's data from the Census Bureau is the latest example. Building permits were slightly higher at 1.482 million units (annual pace) versus 1.459 million previously. Contrast that to housing starts (the term for the ground-breaking phase of home construction) which fell to 1.342 million from 1.494 million previously. This excess volatility in housing starts can be seen in the following chart with the blue line whipping higher and lower many times over the past few years while the orange line remains relatively more steady. There was a heavy regional skew to the housing starts numbers with two regions moving higher and two moving lower as follows: Northeast +2k starts (+1.4%) Midwest +96k starts (+76.2%) South -139k starts (-17.1%) West -129k starts (-30.9%) Note: the count of housing starts account for a different percent change depending on the overall activity level in the region. For example, starts declined more in the South than in the West, but the percent change was much lower because the South had a total level of 524k versus only 289k in the West. If you're thinking that all of the above sounds pretty boring and/or you're wondering why it even matters, you're right. Home construction data is pretty boring--just a slow, steady grind until something big starts happening.
The Mortgage Bankers Association's (MBA) mortgage application survey was at the highest combined level since October in last week's data--a move largely driven by the a sharp drop in interest rates (incidentally, also to the best levels since October). The rate drop was part of the initial market reaction to the April 2nd tariff announcement, but it didn't last. Panic and uncertainty can be good for rates. In fact, it usually is. But when there's panic and uncertainty that involves the bond market itself, rates can move paradoxically higher, as they did last week. In fact, the average 30yr fixed rate rose by half a percent from Friday to Friday. The MBA's rate tracking is weekly and survey-based, so it won't show as much volatility as daily numbers. Nonetheless, it was up 0.20%. “Mortgage rates moved 20 basis points higher last week, abruptly slowing the pace of mortgage application activity with refinance volume dropping 12 percent and purchase volume falling 5 percent for the week. Purchase volume remains almost 13 percent above last year’s level, but economic uncertainty and the volatility in rates is likely to make at least some prospective buyers more hesitant to move forward with a purchase,” said Mike Fratantoni, MBA’s SVP and Chief Economist. In the recent context, both refi and purchase demand remain much closer to the top of the range, despite this week's pull-back. Fratantoni also noted an uptick in the prevalence of ARMs (adjustable rate mortgages), "The ARM share at 9.6 percent was the highest since November 2023, and this reflects the share of units. On a dollar basis, almost a quarter of the application volume last week was for ARMs, as borrowers with larger loans are even more likely to opt for an ARM.”
The Mortgage Bankers Association (MBA) released the latest mortgage application data this week showing a modest 1.6% decrease from the previous week. A slight uptick in purchase applications was more than offset by a downtick in refi applications, but both remain in solid territory relative to the prevailing range and interest rate environments. Purchase demand is doing especially well in the recent context. This week's improvement makes it one of the best 6 weeks in more than a year. The most optimistic way to approach these numbers would be to say that purchase demand looks to have bottomed out in the bigger picture and is now waiting for motivation to bounce back. When that happens, no one is under much of an illusion that volume would go back to the highs from a few years ago, but even recapturing a fraction of that range would make for a meaningfully more active housing market. Refinance demand, as always, is very closely tied to interest rate volatility. Last week's rates moved higher and were near the highest levels in more than a month at one point. As such, it's no surprise to see a bit of a slide in the refi index. If anything, it's refreshing to see how resilient the numbers have been. While we are no great fans of predicting the future, there's a strong possibility that next week's refi numbers will be noticeably higher. That's not hard to imagine given that rates fell to the lowest levels since October by the end of the week.
The National Association of Realtors' Pending Home Sales Index (PHSI) tracks purchase contract signings that have not yet turned into Existing Home Sales. Things haven't been going well for either sales metric for more than 2 years now--a problem that can be blamed on a combination of factors led by it's proximity to the sharpest interest rate spike in decades. That's the bad news. The good news is that things actually haven't gotten markedly worse after the initial swan dive in 2022. This, of course, means that the sales index is free to experience some ups and downs inside the broadly sideways, severely depressed range. The most recent installment amounts to a half smile on an otherwise perpetually sad face. Well, maybe a quarter smile... According to NAR Chief Economist Lawrence Yun, "Despite the modest monthly increase, contract signings remain well below historical levels. A meaningful decline in mortgage rates would help both demand and supply—demand by boosting affordability, and supply by lessening the power of the mortgage rate lock-in effect." Here's a regional breakdown showing the percent change in Pending Sales from the previous month: Northeast: -0.9% Midwest: +0.7% South: +6.2% West: -3.0% And now the percent change from the previous year: Northeast: -2.5% Midwest: -4.7% South: -3.4% West: -3.5%
