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%
This week's update on refinance application demand accurately reflects the fact that rates came into the week near their recent highs, but managed to fall in line with recent lows several days later. The net effect for the Mortgage Bankers Associations (MBA) Refinance Index was a modest drop from last week while remaining elevated relative to the trend seen between November and late February. MBA's purchase index is far less concerned with short term rate fluctuations, and managed to move up to the best levels since early February. In addition, purchase activity is holding in the upper portion of the range that's been intact for nearly 2 years. “Purchase applications saw the strongest weekly pace in almost two months and were 7 percent higher than a year ago. Last week’s purchase activity was driven primarily by a 6 percent increase in FHA applications, as the combination of loosening housing inventory and slowly declining mortgage rates have presented this segment of buyers with more opportunities,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Additionally, VA purchase applications saw a modest increase over the week. Overall applications declined, however, as refinance applications were down 5 percent to its lowest level in a month.”
It's not uncommon for certain medications to come with warnings about avoiding certain activities like driving or operating heavy machinery due to the risk of drowsiness. But medications aren't the only causes of such sleepiness. Just ask the latest New Home Sales report from Census Bureau! There are several ways to establish the soporific nature of this data. First off, the market is always most interested in data when it falls far from the consensus among economic forecasters. At an annual pace of 676k homes versus a median forecast of 680k, this one was about as close as they come. Perhaps more importantly, the sales count hasn't been more than 70k higher or lower than that for the past 2 years. 70k might sound like a lot, but consider that it only took a few months to see sales jump more than 400k in 2020, or that the peak to trough move during the financial crisis was over 1 million homes per year. In other words, sales may be exhibiting some month to month volatility, but they've been almost perfectly sideways, on average, for just over 2 years now. In regional terms, The Midwest and the South did all of the heavy lifting, adding 13k and 27k homes respectively. The Northeast brought the national tally down by 6k and the West did the most damage at 22k. The latest news release from the Census Bureau is always available here: https://www.census.gov/construction/nrs/pdf/newressales.pdf
There are two dominant home price indices released each month in the U.S. The Federal Housing Finance Agency (FHFA) is responsible for the most all-inclusive tally of home prices via its Home Price Index (HPI). S&P Case Shiller provides the private sector's largest HPI, which tends to capture more volatility than FHFA. Both indices have been remarkably close to one another in annual terms for more than a year now. This is not uncommon during times of stable price appreciation. The chart below shows that each index is suggesting year-over-year price growth of just under 5% on average. A chart of price changes in percent terms can underrepresent the reality of home price growth at times like this. After all, a flat line around 5% means that home prices are greatly outpacing inflation (reported at 2.5% year over year just this morning). If we instead focus on the outright level of one of these price indices, the actual trend is obvious. In other words, for any drama that might exist in the housing market these days (elevated rates, lower sales, etc.) home price growth remains relatively drama-free. As always, keep in mind that these indices represent averages and that geographical variations can be pronounced. The following table shows the monthly and yearly percent change for the individual metro areas in the Case Shiller data. The fastest-appreciating metros were north of 6% annually, while the slower areas were under 2%.
As is the case with a majority of housing and mortgage market data these days, the Existing Home Sales data from NAR is heavily dependent on context. To be sure, the headline is true. You'd have to go back to report that came out in February, 2024 to see a higher annual pace of sales. (NOTE: the table above contains initially-reported numbers. NAR subsequently revised the 3/31/24 report up to 4.31m) And if you were to chart these values only, the chart would probably look pretty good for the present month, but it would also belie the situation in the trenches. Home sales certainly aren't in freefall in the bigger picture, but they're generally still sideways at long term lows. Realtors credited an uptick in inventory for the uptick in sales. Additional details are available at NAR's release page here: https://www.nar.realtor/newsroom/existing-home-sales-accelerated-4-2-in-february
The Mortgage Bankers Association conducts a weekly survey on the level of mortgage applications, both for purchases and refinances. Both data series continue to be a tale of two decidedly different eras for the mortgage market. If we focus on the present era, for a moment, refi demand continued to enjoy a relative boom thanks to rates that remain much lower than they had been several weeks ago. The most recent levels were logically a bit lower as the average lender's rates were a bit higher this time around. If you were overcome with indignation at seeing someone refer to refi demand with the word "boom" in 2025, don't worry. We know about the context. The present era is a barren wasteland compared to bygone eras when a boom meant roughly 5 times as many refis as today. The "2 era" phenomenon is less extreme when it comes to purchases, which tend to respond to rates only very gradually. This has made for a much steadier level of purchase demand over the past few years. In addition, the boomier era only saw twice as many purchase apps. Other highlights from the data: Refis accounted for 42% of apps, down from 45.6% last week MBA's survey showed a conventional 30yr fixed rate increase from 6.72 from 6.67 the previous week FHA rates rate about 0.30% lower ARM rates were 5.84% but only account for 6.7% of applications
The Census Bureau released its New Residential Construction report this week, frequently referred to by its principal component "housing starts" (a term for the start of the first phase of new home construction, aka "breaking ground"). In addition to housing starts, the data also logs building permits as well as completions. As we often note, building permits are more even-keeled while housing starts and completions can experience much more month-to-month volatility. February was the latest example of that as permits came in right in line with forecasts while housing starts surged higher. Single family homes accounted for the vast majority of the improvement, rising to their highest levels in a year, and close to the highest levels since early 2022. There's often quite a bit of variation across geographies in housing starts. This time around, 2 regions did most of the heavy lifting with the Northeast surging 75% from last month, bringing the annual pace for single family homes up to 84k from 48k. The South only posted a 19.6% gain, but because it's a much larger housing market, that resulted in an annual pace increase of more than 100k units. In contrast, the Midwest slid backward by 34k units, or about 25% from last month's annual pace. The West was the most uneventful region, with a modest 1.8% increase, or 5k units in terms of annual pace. The full text and tables of the release are available at the Census Bureau's site, here: https://www.census.gov/construction/nrc/pdf/newresconst.pdf
The National Association of Homebuilders/Wells Fargo Housing Market Index (aka "builder confidence") hasn't been in a purgatory of sorts, ever since the big interest rate spike in the 2nd half of 2022. Builders aren't nearly as downbeat as they were during the Great Financial Crisis years, but nowhere remotely as confident as the during the post-pandemic highs. The index has now spent more than 2 years muddling sideways in an increasingly narrow range. The latest reading, reported this week, was worse than economists were expecting, largely due to a bigger decrease in buyer traffic. Even so, the headline confidence level remains in the same consolidation pattern (marked by the arrows in the following chart). Other details from this month's survey noted by the NAHB: Builders say tariffs should increase the cost of the typical home by $9200. Policy uncertainty is contributing to indecision, both on the part of buyers and developers. 29% of builders cut prices in March, up from 26% in February. The prospect of regulatory relief has helped offset the negative implications from new fiscal policies to some extent.
As we noted last week, the timing of the improvements in mortgage rates meant that the previous survey of mortgage applications from the MBA was unable to capture what would likely prove to be a fairly big uptick in refinance demand. This week's data confirmed it as the refi index jumped to the best levels since October. Unsurprisingly, this coincided with rate moving back to the range seen in mid-October, although it is somewhat surprising that we didn't see a better spike in refi demand in early December when rates were in the same zone. As has been and continues to be the case, we're taking victories where we find them. Refi demand is operating on an entirely different scale than in the past (when a rate rally meant that far more homeowners would benefit from refinancing). Purchase demand is always less influenced by short term rate fluctuations. This week was no exception with MBA's purchase holding almost perfectly steady and continuing to operate in the same broadly sideways range that's been intact for 2 years.
