Mortgage Demand Is Up In Six Weeks, Despite Much Higher Interest Rates – Housing Construction Rebounds Seen in August While Existing Home Sales Fall


Housing Construction Rebounds In August While Permits Drop

According to the U.S. Census Bureau and Housing and Urban Development Department, residential building unexpectedly picked up in August, with home starts up 12.2% month over month to a seasonally adjusted annual rate of 1.58 million units.

Both multifamily and single-family starts increased during the month. The growth occurred even as the housing sector battles a slowdown brought on by the unpredictability of the economy and the climate of rising mortgage rates.

After falling for five consecutive months, single-family starts increased by 3.4% in August, perhaps as a result of some improvements in the supply of building materials. However, the single-family building is still insufficient by modern standards.

“Today’s housing starts report is more evidence that the housing recession is deepening for the single-family market, with the pace below 1 million for the last two months,” added Jing Fu, the NAHB’s director of forecasting and analysis. “Expected additional tightening of monetary policy from the Federal Reserve, falling builder sentiment, and a 15.3% year-over-year decline in single-family permits point to further weakening for the housing sector.”

Even while the August numbers are positive, the construction recovery might only be temporary. August saw a 10% drop in all building permits, with single-family permits falling by 3.5% and multifamily permits falling by 17.9%. The August reversal indicates that builders are still reducing production due to continued material cost concerns and muted demand. Permitting is a reliable predictor of future new-home supply.

Existing Home Sales Fall in August; Prices Soften Significantly

As the National Association of Realtors reported, sales of previously owned homes dropped 0.4% from July to a seasonally adjusted annualized rate of 4.80 million units. That is the lowest sales pace since May 2020, when the Covid epidemic’s beginnings temporarily caused activity to stall.

All price ranges saw a decline in sales, but the lower end saw the most significant drop. While sales of properties priced between $750,000 and $1 million were down just 3% from the previous year, those priced between $250,000 and $500,000 saw a 14% decline—a decline primarily due to supply, which is most scarce at the bottom end of the market.

Although there was a slight increase in single-family housing starts in August, the U.S. Census reports that homebuilders have been cutting back in response to declining demand. That might have been brought on by a momentary dip in mortgage rates that increased buyer interest. Building permits, a sign of upcoming construction, decreased since mortgage rates were anticipated to rise once more.

Mortgage Demand Is Up In Six Weeks, Despite Much Higher Interest Rates

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances—$647,200 or less—rose from 6.01% to 6.25%, with points for loans with a 20% down payment falling from 0.76 to 0.71 (including the origination fee).

Applications to refinance a home loan, often particularly susceptible to significant rate changes, actually increased 10% for the week. The prior week’s holiday adjustment might have impacted part of that. It’s also possible that the few remaining borrowers who could profit from a refinance finally decided to do so after realizing that rates might increase soon.

Despite an increase of 1% for the week, mortgage applications for home purchases were 30% fewer than during the same week last year. Since there is currently less competition in the expensive market, some buyers might act quickly. Even so, costs have not decreased much, and because interest rates are currently so high, affordability is historically poor. The slight weekly increase in mortgage demand does not accurately reflect the current severe decline in home sales.

A bank advertises that it offers mortgage loans with no interest.

Customer: “Hello, I’d like to apply for a mortgage.”

Bank Employee: “Yeah, whatever.”

Next week’s potential market-moving reports are:

  • Monday, September 26 – Chicago Fed National Activity Index
  • Tuesday, September 27 – S&P Case Shiller and FHFA U.S. Home Price Index (SAAR), New Home Sales (SAAR)
  • Wednesday, September 28 – Pending Home Sales Index
  • Thursday, September 29 – Initial Jobless Claims, Continuing Jobless Claims
  • Friday, September 30 – Core PCE Price Index, Real Consumer Spending, Chicago PMI

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.