March 25, 2019
Lower rates are not giving mortgage demand any sizable boost, except when it comes to higher-end homes.
Total mortgage application volume rose 1.6 percent last week from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was 1.8 percent higher than a year ago.
The gains came mostly from refinance volume, which is highly rate-sensitive. Refinance applications rose 4 percent for the week and were 3.5 percent higher than a year ago. Interest rates had been higher last year, but as rates now fall, more borrowers can benefit from a refinance.
"Mortgage rates declined once again last week, as concerns about the slowing global economy and status of Brexit continued to drive investors' demand for U.S. Treasuries, ultimately pushing yields lower," said Joel Kan, the MBA's associate vice president of economic and industry forecasting.
Mortgage applications to purchase a home, however, did not respond substantially. Purchase volume increased 0.3 percent for the week and was 1 percent higher than a year ago.
"Entry-level housing supply remains weak and is likely hindering some would-be first-time buyers from finding a home," Kan said. "This, along with faster growth in the higher price tiers, is why the average loan application size has risen to a new high for three straight weeks."
The nation's homebuilders are feeling positive about their business, but not as much as they did a year ago.
A monthly sentiment measure held steady at 62 from February to March, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The index stood at 70 in March 2018. Anything above 50 is considered positive.
"Builders report the market is stabilizing following the slowdown at the end of 2018, and they anticipate a solid spring home buying season," said NAHB Chairman Greg Ugalde, a homebuilder and developer from Torrington, Connecticut.
Mortgage rates rose throughout most of last year but have since fallen to below year-ago levels. That should help make all homes more affordable, but new homes come at a higher price than similar existing ones.
Weak affordability has been the biggest problem in the new home market, as builders have largely focused on move-up homes rather than cheaper entry-level products. The median price of a new home sold in January was down nearly 4 percent annually, according to the U.S. Census. That was not necessarily because builders were lowering prices, but because a larger share of entry-level homes sold that month. Sales in January fell to a three-month low.
"More builders are saying that lower price points are selling well, and this was reflected in the government's new home sales report released last week," said Robert Dietz, NAHB's chief economist. "Increased inventory of affordably priced homes — in markets where government policies support such construction — will enable more entry-level buyers to enter the market."
Builders say they continued to have trouble building lower-priced homes, however, due to shortages of skilled labor and buildable lots.
Of the index's three components, sales expectations in the next six months rose 3 points over the past month to 71, current sales conditions increased 2 points to 68, and traffic of prospective buyers fell 4 points to 44. Buyer traffic has been in negative territory for several months.
Looking at three-month moving averages, builder sentiment in the Northeast rose 5 points to 48, the South was up 3 points to 66 and the West increased 2 points to 69. Sentiment in the Midwest fell 1 point to 51.