Mortgage Applications to purchase a home collapsed, a forward-looking indicator of the direction of home sales in October.
By Wolf Richter for WOLF STREET.
Mortgage applications to purchase a home plunged further in the week ending October 16, the seventh week in a row of declines, revisiting the rock-bottom lowest points in 2023 and 2024, which had been the lowest since the early 1990s, according to data by the Mortgage Bankers Association today.
Compared to the same week a year ago, purchase mortgage applications have plunged by 18%; compared to the same week in 2019, by 47%.
These purchase mortgage applications are a forward-looking indicator of the direction of “pending” sales and then “closed” sales in October and November to be reported in November and later. Purchase mortgage applications show demand from buyers – or the lack thereof – who want to obtain a mortgage to fund their purchase.
Including cash deals…. This plunge in mortgage applications indicates that pending sales for October will be even worse than in September. Pending sales for September – sales that hadn’t closed yet by the end of September – collapsed to the lowest volume in the data going back to 2011, according to data from the National Association of Realtors yesterday. These pending sales for September included cash deals.
If homeowners want to sell their homes, there is a market and there is demand, but the price has to be where the buyers are. That’s what this says.
Renting has become the far cheaper option on a monthly basis in many markets, given where home prices, mortgage rates, homeowners’ insurance premiums, property taxes, and HOA fees are. High home prices entail high carrying costs all around.
And home-price increases can no longer be taken for granted to bail out buyers with too-high carrying costs. Home prices have already been falling in many markets (we discuss some of them here).
The average weekly mortgage rate for conforming 30-year fixed mortgages dipped to 7.41% in the reporting week, according to the Mortgage Bankers Association today.
These 30-year mortgage rates track the yields of mortgage-backed securities (MBS), but are higher, and MBS track long-term Treasury yields, but are higher, and that spread between them varies over time.
This average 30-year fixed mortgage rate has been in the 6-8% range for over four years, since early September 2022. During the normal times, before the Fed’s QE and interest rate repression started in 2008, those 7.5% mortgages were considered normal and for many years low.
Mortgage applications to refinance a home dropped further during the week and are down by 57% year-over-year and by 76% from the same week in 2019, according to the MBA today.
Refinance applications react inversely to changes in mortgage rates: Higher mortgage rates cause refinance applications to dry up; lower mortgage rates trigger mini-booms of refinancing. At current mortgage rates, refinancing activity has collapsed.
Real estate agents and the mortgage industry exhorted potential buyers, after mortgage rates had surged in 2022: “Marry the house, date the rate.” Meaning that they should pay whatever for the house, and mortgage rates would soon plunge again, and then they can refinance into a 4% mortgage or whatever, and it would all work out. Those buyers married an expensive house and also married an expensive mortgage.
This chart shows that inverse relationship between mortgage rates (blue) and applications to refinance a mortgage (red):
One of the reasons the housing market has been frozen for four years is that home prices had exploded by 50% or more in many markets from mid-2020 to mid-2022 due to the Fed’s interest-rate repression resulting in below-3% mortgages when inflation was 9%. That home price explosion came on top of the already high home prices at the time, to where now home prices don’t make economic sense. But they push up the carrying costs of a home: Mortgage payments, homeowners’ insurance premiums (via surging replacement costs), property taxes, and HOA fees, thereby triggering a historic affordability crisis.
In case you missed it: Single-Family & Multifamily Rents in the US and 22 Large US Metros: Amid Massive Divergence, Rents Are Re-Accelerating
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I find the dichotomy between the housing market and the stock market fascinating. The housing market is starting to get the overvaluation. The stock market is not.
Yes, that is some steep pricing on mortgages. I guess that is the point though: to slow the economy via housing in part in order to arrest inflation. Hopefully it will work.
Those are normal rates, historically. What’s not normal are the prices. They are delusional. It’s the same story as the last housing bubble. Ask longtime owners if they could afford their current house at today’s prices and rates. For most the answer is an emphatic “NO.”
In most markets, house prices need to be HALVED in order to get back in line with rents and affordable monthly payments. There is great pain not only on the horizon, but happening RIGHT NOW. As Wolf has shown repeatedly, many markets are not only correcting but crashing. And that’s just based upon median prices.
The current median price is grotesquely obscuring what’s really going on as the mix is skewed towards the higher end where the wealthy are focused and purchasing, since they are the only ones who can afford these outrageous prices. It’s a bloodbath out there.
I’ve got two new homes a mile from me. They have been on the market almost 2 years and a 1.5 respectively, if you can even call them new anymore? The oldest is starting to look like it needs paint.
They tore the old 2 and 3 bedroom traditional style down and built giant palaces complete with wine cellars, pools, artificial lawns, on and on.
Anyway, one started at 1.8m and the other at 1m. Not much in CA dollars but for a working class neighborhood in North Tampa called Lowry Park, insane.
Well, we are now at 1.4m and 785k. I figure based on the location and interest rates the 1.4 should 785 and the 785 about 495 and still may be hard sells. Huge haircuts yes, but if you new the area and the lots these monstrosities were built on it becomes clear.
50% haircut is not unheard in Florida pullbacks or more depending on location.
These are not the only McMansions out there, there are dozens. How long before these independents throw in the towel? Methinks soon.