Weekly Mortgage Applications Hit a Record, But Not a Healthy One for Housing
March 18, 2019
Mortgage interest rates are now decidedly lower than a year ago, and home shoppers are buying in, but most are wealthier consumers purchasing more expensive homes.
Total mortgage application volume rose 2.3 percent last week from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was essentially flat compared with the same week one year ago.
Falling rates were likely behind a sizable jump in loan applications to purchase a home. They rose 4 percent for the week and were 2 percent higher than a year ago. Buyers last year were up against high home prices and rising rates, pushing affordability down to the lowest level in a decade. That, combined with a severe scarcity of entry-level homes for sale, put the housing market in a deep freeze. Rates, however, began falling at the end of the year, helping affordability, but apparently only for some.
"Purchase applications have now increased year over year for four weeks, which signals healthy demand entering the busy spring buying season," said Joel Kan, the MBA's associate vice president of economic and industry forecasting. "However, the pickup in the average loan size continues, with the average balance reaching another record high. With more inventory in their price range compared to first-time buyers, move-up and higher-end buyers continue to have strong success finding a home."
The average loan size jumped to a record $326,000, well above the nation's median home value, which the National Association of Realtors said stood at $247,500 in January.
Applications to refinance a home loan decreased 0.2 percent for the week and were 4.4 percent lower than a year ago. Rates may be lower than last year, but so many people have already refinanced at even lower rates, in the 3 percent range, that there is a limited pool of potential borrowers who could still benefit.
For Homebuilders, 'The Next Few Months Are Big'
Builders claim they're feeling better about their business, but the sales numbers are still not reflecting that. All eyes are on the spring market, which could determine the fate of both the stocks and the earnings of the biggest builders.
Sales of newly built homes fell sharply in January, down nearly 7 percent month to month and down 4 percent compared with January 2018, according to the U.S. Census. This was a surprise, as builder sentiment jumped in January, according to the National Association of Home Builders.
"We all know that the pace of housing transactions has slowed to no growth as high home prices combined with higher mortgage rates froze behavior," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "Now with the latter seeing relief, the next few months are big in measuring the state of the industry and consumer taste for big-ticket, life-altering decisions."
Mortgage applications to purchase a home, are basically flat compared with a year ago, according to the Mortgage Bankers Association. Sales of existing homes appear to be picking up, but new homes come at a price premium, and today's buyers are already stretched financially.
The price of a newly built home sold in January did decline 3.8 percent, but that was more due to a shift in the mix of homes selling, not builders reducing prices. About 37 percent of sales were of homes just below the median price, a far greater share than a year ago, when only 27 percent of sales were below the median.
"Although existing home buyers are capitalizing on the recent decline in mortgage rates, it didn't spark buyer interest in new homes in January," said Danielle Hale, chief economist for Realtor.com. "Given the rising cost pressures builders are facing, this could suggest continued difficulty for new homes and new construction ahead."
The supply of newly built homes also rose to a three-month high, and analysts report a growing number of so-called "spec" homes, or homes being built without buyers. During the housing crash, builders were only building homes that already had buyers under contract. As sales weaken, builders could be sitting on more unsold homes, which will cost them in both taxes and maintenance.
The data on new home sales is volatile, according to the Census itself, and a three-month average puts sales at the highest level since June. Both sales and construction, however, are well below historical norms, and demand has been incredibly sensitive recently to interest rates. While builders report strong expectations for sales over the next six months, they are also reporting disappointing buyer traffic through their model homes.