Is There Really 6 Months Worth of Inventory today? Mortgage Applications Fall to 2-Year Low

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New Home Sales Ebb. Is There Really 6 Months Worth of Inventory?

According to the Census Bureau, new home sales declined 4.5 percent in January to 801k units annually. Economists had predicted a drop to a relatively higher level of 806k than December’s 839k. At the surface level, all of these figures are highly acceptable. They leave new home sales at record highs compared to the previous 15 years. But taking a deeper look, we discover that the Census Bureau’s inventory statistic—”months of supply”—is at an oddly high of 6.1, up from 5.6 in the previous report. Almost everyone in the housing/mortgage market would have the same skeptical reaction: “There’s no way there’s a 6-month supply of new homes on the market!” 

As you might assume, there aren’t 6.1 months’ worth of new homes on the market right now—at least ones that could be sold quickly. Although those homes are officially in the works, construction on a record number has yet to commence.

Home Prices Aren’t Slowing Down (Yet)

The FHFA House Price Index increased 19.3 percent year over year in July, while the S&P CoreLogic Case-Shiller 20-City Index up 20.0 percent. Since then, both have cooled off a little, but only barely. The most recent update for both reports arrived today (through December). Case Shiller (national) estimates a monthly home price change of +1.5 percent and an annual change of +18.8 percent. FHFA (national) data, on the other hand, shows a monthly increase of +1.2 percent and a yearly increase of +17.6 percent. In other words, prices indicate a steady commitment to maintaining their upward trend. In December’s data, price inflation has plateaued, rather than making a massive turn as it did in July.

Prices have already surpassed the threshold of moving too high and too fast to be maintained (thanks to record low inventory, primarily). While this does not necessarily imply that prices would fall, it is undeniable that the rate of increase will reduce. “When” and “by how much?” are the only questions.

MBA Weekly Applications Survey Feb. 23, 2022: Mortgage Applications Fall to 2-Year Low

The Mortgage Bankers Association said Wednesday in its Weekly Applications Survey for the week ending February 18th that mortgage applications fell to their lowest level since December 2019 as mortgage interest rates remained above 4%.Is There Really 6 Months Worth of Inventory today? Mortgage Applications Fall to 2-Year Low

The Market Composite Index dropped 13.1% from the previous week on a seasonally adjusted basis. The unadjusted Refinance Index was also down 16%, and the refinance share of total mortgage applications fell to 50.1% from 52.8% last week. The seasonally adjusted Purchase Index also dropped 10%, while the FHA’s percentage of total applications grew to 8.7% from 8.3% last week. The rate of all applications submitted by veterans rose to 9.9% from 9.3% the week before. The USDA’s share of total applications remained constant from the previous week, at 0.4 percent.

Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting, said that “Conventional refinances, in particular, saw a 17 percent decrease last week. Purchase applications, already constrained by elevated sales prices and tight inventory, have also been impacted by these higher rates and declined for the third straight week. While the average loan size did not increase this week, it remained close to the survey’s record high.”

Is There Really 6 Months Worth of Inventory today? Mortgage Applications Fall to 2-Year LowNext week’s potential market moving reports are:

  • Monday, February 28th – No Report   
  • Tuesday, March 1st – Consumer Spending, ISM Manufacturing Index
  • Wednesday, March 2nd – ADP Employment Report
  • Thursday, March 3rd – Initial Jobless Claims, Building Permits, New Home Sales
  • Friday, March 4th – Unemployment Rate, Labor Force Participation Rate, Prime Working Age

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends. I welcome the opportunity to serve you in any way I possibly can. Please feel free to reach me at (800) 216-1047.

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