Purchase Applications Remain Resilient While Refis Keep Sliding
Interest rates and mortgage refinance demand have a solid and predictable relationship. Rates rise, and refinances fall. Rates are highest in years, but refis are lowest in years. That’s a scenario that’s been unfolding since mortgage rates hit their most recent notable low in August 2021. However, the drop in refinance activity has been relatively linear, with activity only recently reaching long-term lows in 2018. According to the Mortgage Bankers Association’s weekly application survey, refi applications fell 14% in the most recent week, marking one of the steepest drops in this recession cycle.
Purchases continue to do substantially better in both the short and long term. Except for the post-covid demand boom, they were only down 2% this week and have been mainly flat for the preceding several weeks at levels that are still better than most of the previous decade.
Housing Boom To Lose Steam By The End Of Summer
Ian Shepherdson, chief economist and founder of research consulting firm Pantheon Macroeconomics, anticipates a 25% drop in existing-home sales between February and summer, reducing the yearly rate to 4.5 million from 6.02 million in real terms.
“The housing market is in the early stages of a substantial downshift in activity, which will trigger a steep decline in the rate of increase of home prices, starting perhaps as soon as the spring,” Shepherdson wrote in a note.
The forecast is based on the Mortgage Bankers Association’s data, suggesting an 8% drop in loan applications. Shepherdson reckons that the average monthly mortgage payment has climbed by almost $400. It could also be a warning sign for the housing market. If the market slows, many potential sellers may decide not to list to avoid being “the last person trying to sell into a falling market,” which would exacerbate current supply challenges.
Bidding Wars Reached Record High in February, Redfin Reports
According to new Redfin data, bidding wars arose in 68.6% of the house offers filed by Redfin agents nationwide on a seasonally adjusted basis in February. In February, the bidding war rate was the highest in Redfin’s records, which go back to April 2020.
As the government attempts to contain inflation, mortgage rates have risen. For the first time since 2019, the average 30-year fixed mortgage rate surpassed 4%, reaching 4.16 percent during the week ending March 17. This week, the Federal Reserve hiked rates for the first time in four years. Despite economic uncertainties caused by the Ukraine conflict, the administration expects six more rate hikes this year.
Many homebuyers have resorted to townhouses because they have been driven out of the single-family home market due to rising housing prices. With a bidding war rate of 76.6 percent in February, homes listed in the $1 million to $1.5 million categories were the most likely to encounter competition. Properties priced between $600,000 and $800,000 came in second (73.8 percent), followed by homes priced over $1.5 million (73.1 percent).
Next week’s potential market-moving reports are:
- Monday, March 28th – No Report
- Tuesday, March 29th – National House Price Index, Job Openings, Quits
- Wednesday, March 30th – Employment Report, Gross Domestic Income
- Thursday, March 31st – Initial Jobless Claims, Continuing Jobless Claims
- Friday, April 1st – Unemployment Rate, Construction Spending
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