Tag: mortgagerates

Home buyers thought mortgage rates were finally going to go down. Why hasn’t it happened yet?

Why are mortgage rates still so high?

After a year of mortgage rates near 8%, home buyers are eager for good news. Some forecasters have buoyed their hopes, estimating that the rate on the 30-year mortgage will drop to 6% or lower this year.

But rates have not fallen by much thus far. The 30-year rate is currently averaging 6.64%, according to Freddie Mac. That’s despite the fact that the U.S. Federal Reserve hasn’t raised its benchmark interest rate since July 2023 and signaled in December that it would cut that rate in 2024. Meanwhile, economists in the real-estate sector have been anticipating a drop in mortgage rates since last fall.

“Homebuyers may be feeling like the lower mortgage rates they’ve been promised in 2024 are not materializing,” Lisa Sturtevant, chief economist at Bright MLS, said in a statement. In a recent survey of Americans’ feelings about the housing market, 36% of respondents said they expect mortgage rates to fall in the next 12 months.

While the Fed doesn’t set mortgage rates, it can influence them, just as it influences the overall U.S. economy through monetary policy. But even though the central bank has hit the brakes on tightening monetary policy, with the economy giving off mixed signals of strength and weakness, the timing of anticipated cuts to the benchmark rate remains unclear.

That in turn creates uncertainty about when mortgage rates will drop enough to “unfreeze” the housing market. Home buyers are probably going to have to wait until the Fed acts definitively before they see those lower rates.

The effect of a strong economy

The strength of the U.S. economy is one reason mortgage rates have not yet fallen much, economists say. The job market is still hot, and inflation remains higher than the Fed’s goal, which is why the latest read on inflation, out Feb. 13, will be so closely watched. The fact that rates haven’t fallen this year is “a result of uncertainty about the economy and the timing of the Fed’s rate cuts,” Sturtevant said.

“The strong job market is good news for the spring buying season, as higher household incomes are a necessary component, but it also means that mortgage rates are not likely to drop much further at this point,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, told MarketWatch.

Another reason mortgage rates are still high is that lenders are trying to protect themselves against lower rates in the future, Cris deRitis, deputy chief economist at Moody’s Analytics, told MarketWatch. If rates fall, lenders run the risk that a borrower will pay off a loan early by refinancing. That would limit how much in interest that lender could expect to make.

“In an odd sort of way, then, the expectation that mortgage rates will be lower in the future can lead lenders to increase rates today to compensate for the prepayment risk,” deRitis said.

Lower rates, more competition among buyers

So when can prospective buyers expect mortgage rates to fall significantly?

“Homebuyers should expect mortgage rates to move lower as we head through 2024,” Sturtevant said. While Fannie Mae expects rates to fall below 6% by the end of the year, other economists, like Fratantoni, expect the 30-year rate to finish the last quarter of 2024 at 6.1%.

But even if rates do fall, that won’t necessarily mean buyers will be better able to afford a home, because a drop in rates could heat up competition for homes even as it boosts buyers’ purchasing power.

“There is still very low inventory in the market, and buyers need to act quickly when they find the right home for them,” Sturtevant said.

For the many homeowners who currently have a mortgage rate below 4%, rates stuck in the 6% range may be leading them to put off plans to sell their home and buy a new one.

But it’s worth noting that since 2000, rates on 30-year mortgages have ranged from a high of about 8.62% to a low of 2.81%, averaging about 5% over that span. And compared with the historical average of the 1970s, which was 7.7%, the current rates in the 6% rage are not that high, deRitis noted.

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February 12, 2024
Mortgage rates' dip to 7% could be brief if jobs market stays strong, Fannie Mae economist says

November’s sharp pullback in 30-year fixed mortgage rates may not last if the labor market remains strong, said Mark Palim, deputy chief economist at Fannie Mae.

Palim was speaking to the robust jobs report released on Friday, showing the U.S. added 199,000 jobs in November and that wages rose, albeit with the figures somewhat inflated by the return of striking workers from the auto industry and from Hollywood.

Homebuyers can benefit from a robust labor market and the near 80 basis point decline in mortgage rates since the end of October, Palim said. But if the “labor markets remain this strong, we believe the pace of mortgage rate declines will likely not continue in the near term or may partially reverse,” he said in a statement.

The benchmark 30-year fixed mortgage rate was edging down to 7.05% on Friday, after surging to nearly 8% in October, according to Mortgage Daily News.

Optimism around the potential for falling mortgage costs to thaw home sales helped lift shares of Toll Brothers Inc.,
TOL,
+1.86%
and a slew of other homebuilders tracked by the SPDR S&P Homebuilders ETF,
XH,
to record highs earlier this week, even while investors in some homebuilder bonds have been sellers in recent weeks.

Yields on 10-year
BX:TMUBMUSD10Y
and 30-year Treasury notes
BX:TMUBMUSD30Y
were up sharply Friday, to about 4.23% and 4.32%, respectively, but still below the highs of about 5% in October. The surge in long-term borrowing costs was stoked by tough talk by Federal Reserve officials about the need to keep rates higher for longer to bring inflation down to a 2% annual target.

Read: Solid job growth, sharp wage gains sends Treasury yields up by the most in months

U.S. stocks were up Friday afternoon, shaking off earlier weakness following the jobs report. The Dow Jones Industrial Average
DJIA
was 0.2% higher, further narrowing the gap between its last record close set two years ago, the S&P 500 index
SPX
and the Nasdaq Composite Index
COMP
also were up 0.2%, according to FactSet data.

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December 8, 2023
U.S. pending home sales stay near record low despite modest pickup in September

The numbers: U.S. pending home sales rebounded in September but remain near a record low as high mortgage rates and low inventory continue to hurt the real-estate sector.

Pending home sales rose 1.1% in September from the previous month, according to the monthly index released Thursday by the National Association of Realtors.

But pending home sales were still depressed on an annual basis due to the dearth of home listings. The September figure was the second-lowest reading since the NAR began tracking the data in 2001.

Transactions were down 11% from last year.

Nonetheless, the sales pace exceeded expectations on Wall Street. Economists were expecting pending home sales to fall 1.5% in September.

Pending home sales reflect transactions where the contract has been signed for the sale of an existing home, but the sale has not yet closed. Economists view it as an indicator of the direction of existing-home sales in subsequent months.

The NAR also released an updated forecast for existing-home sales on Thursday. The group expects sales to fall 17.5% in 2023 to a pace of 4.15 million, which will be the slowest pace since 2008. Yet due to low inventory, the median home price will increase by 0.1% in 2023, the NAR said, to $386,700.

The group expects home sales to rebound in 2024, rising 13.5% to a rate of 4.71 million. Home prices are expected to rise 0.7% next year, to $389,500.

The NAR also expects the 30-year mortgage rate to fall to 6.9% in 2023 and 6.3% in 2024. The 30-year was averaging 7.98% as of Wednesday, according to Mortgage News Daily.

Big picture: The U.S. housing market is dealing with problems on both the demand and supply sides, but the NAR seems confident that the sector will recover in the new year.

At present, not only are rates high enough to discourage home buyers, the lack of inventory is also making homes more expensive, which further spooks buyers. The NAR expects the pace of existing-home sales to fall to the slowest in 15 years, when the U.S. was in the midst of a recession caused by the subprime-lending crisis.

What the realtors said: “Because of home builders’ ability to create more inventory, new-home sales could be higher this year despite increasing mortgage rates,” NAR Chief Economist Lawrence Yun said. “This underscores the importance of increased inventory in helping to get the overall housing market moving.”

Market reaction: Stocks
DJIA

SPX
were mixed in early trading on Thursday. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
rose above 4.9%.

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October 26, 2023
U.S. home sales fell in September to the lowest level since the Great Recession

The numbers: Home sales in September fell to the lowest level since 2010, as high mortgage rates continue to hammer the housing market.

Aside from low inventory, rising rates are eroding buyers’ purchasing power, and drying up demand. Sales of previously owned homes fell by 2% to an annual rate of 3.96 million in September, the National Association of Realtors said Thursday.

That’s the number of homes that would be sold over an entire year if sales took place at the same rate every month as they did in September. The numbers are seasonally adjusted.

The drop in sales was slightly better than what Wall Street was expecting. They forecasted existing-home sales to total 3.9 million in September.

Compared to September 2022, home sales are down by 15.4%.

Key details: The median price for an existing home in September rose for the third month in a row to $394,300. Prices are up 2.8% from a year ago. That was the highest price for the month of September since NAR began tracking the data.

Home prices peaked in June 2022, when the median price of a resale home hit $413,800.

Around 26% of properties are being sold above list price, the NAR noted.

The total number of homes for sale in September fell by 8.1% from last year, to 1.13 million units. Housing inventory for the month of September was the lowest since 1999, when the NAR began tracking the data.

Homes listed for sale remained on the market for 21 days on average, up from the previous month. Last September, homes were only on the market for 19 days.

Sales of existing homes rose only in the Northeast in September, as compared with the previous month, by 4.2%. The median price of a home in the region was $439,900.

All-cash buyers made up 29% of sales, highest since January 2023. The share of individual investors or second-home buyers was 18%. About 27% of homes were sold to first-time home buyers.

Big picture: The U.S. housing market is in the midst of a serious slowdown that is primarily driven by high mortgage rates. High rates spook home buyers, drying up demand, and high rates also deter homeowners from selling since they may have to purchase another home. For a homeowner with a 3% mortgage rate for the next few decades, there’s little incentive to move.

And the residential sector is likely to see sales fall further in October’s data, as the 30-year mortgage inches even higher. Demand for mortgages has collapsed, and some outlets like Mortgage News Daily are quoting a rate of 8% for the 30-year.

Existing-home sales in 2023 could fall to the slowest pace since the housing bubble burst in 2008, real-estate brokerage Redfin said on Thursday, at a 4.1 million pace.

What the realtors said: “Mortgage rates and limited inventory has been the story throughout this year — no different this month, other than the fact that interest rates are moving higher,” said Lawrence Yun, chief economist at the National Association of Realtors.

“The Federal Reserve simply cannot keep raising interest rates in light of softening inflation and weakening job gains,” he added. “We don’t want the Fed to overdo it and cause great harm to real estate.”

Yun also questioned whether there will be a “fundamental change” or a temporary one to the “American way of life” due to the slowdown in sales.

Market reaction: Stocks were down in early trading on Thursday. The yield on the 10-year note
BX:TMUBMUSD10Y
rose above 4.9%.

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October 19, 2023
Mortgage bankers expect the 30-year rate to drop to 6.1% by the end of 2024

PHILADELPHIA — High mortgage rates are hammering home buyers, but expect rates to fall over the next year, one industry group says.

Mortgage rates are over 7.5% as of mid-October, but expect rates to fall to 6.1% by the end of 2024, according to a forecast by the Mortgage Bankers Association. The group also expects the 30-year mortgage rate to fall to 5.5% by the end of 2025.

A big driver pushing down rates will be a slowing U.S. economy, Mike Fratantoni, chief economist and senior vice president at the MBA, said during the group’s annual convention in Philadelphia on Sunday.

Not only is the group expecting a recession in the first half of 2024, but the MBA also forecasts unemployment to rise and inflation to slow, which are signs of a weakening U.S. economy. That will, in turn, push rates down, as the market will expect the Fed to back off on hiking interest rates, they said.

“The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected,” Fratantoni said.

Consequently, mortgage lenders could see origination volume to increase 19% in 2024, to $1.95 trillion from the $1.64 trillion expected this year. Purchase originations are expected to rise by 11%, the MBA said.

The pandemic years were boom times for the mortgage industry. 2021 was a record year, when $4.4 trillion in mortgages were originated.

But after the Fed began hiking interest rates in the middle of 2022, surging rates have put a damper on home-buying activity. Homes are far more expensive to purchase due to high rates, with the median principal and interest payment rising to $2,170 in August, compared to $1,284 in August 2021, according to MBA data.

Fratantoni on Sunday said that he believed the “Fed is done” with rate hikes. There are two Fed meetings left this year. The MBA said it does not expect the Fed to hike interest rates in November, and to potentially hold off in December, depending on the data.

But for now, lenders should brace for “a little bit more pain” for the next few months, which is generally a slower season for home sales, until a turnaround at the end of spring in 2024, Marina Walsh, vice president of industry analysis at the MBA, said during a presentation.

Home prices will still continue to rise over the next three years, the MBA added, due to the persistence of tight inventory.

Millennials are entering their prime home-buying years, said Joel Kan, deputy chief economist at the MBA, which will keep prices from falling.

“The forecast is for low single-digit growth over the next few years supported by [low] inventory,” he said. “We’re not expecting national declines yet.”

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October 15, 2023
Homes are expensive right now, but these mortgage bonds look cheap

U.S. homes may be wildly unaffordable for first-time buyers, but mortgage bonds backed by those same properties could be dirt cheap.

Shocks from the Federal Reserve’s dramatic rate increases have walloped the $8.9 trillion agency mortgage-bond market, the main artery of U.S. housing finance for almost the past two decades.

Spreads, or compensation for investors, have hit historically wide levels, even through the sector is underpinned by home loans that adhere to the stricter government standards set in the wake of the subprime-mortgage crisis.

Bond prices also have tumbled, sinking from a peak above 106 cents on the dollar to below 98, despite guarantees that mean investors will be fully repaid at 100 cents on the dollar.

From $106 to $98 cents, agency mortgage-bond prices are falling.

Bloomberg, Goldman Sachs Global Investment Research

“It’s really, really struggled,” Nick Childs, portfolio manager at Janus Henderson Investors, said of the agency mortgage-bond market during a Thursday talk on the firm’s fixed-income outlook.

Yet Childs and other investors also see big opportunities brewing. While mortgage bonds have gotten cheaper with the sector’s two anchor investors on the sidelines, the stalled housing market should breed scarcity in the bonds, which could help lift the sector out of a roughly two-year slump.

Prices have tumbled since rate shocks hit, but also since the Fed continued winding down its large footprint in the sector by letting bonds it accumulated to help shore up the economy roll off its balance sheet.

Banks awash in underwater securities have pulled back too. The repricing of similar bonds helped hasten the collapse of Silicon Valley Bank in March.

“Banks have been not only absent, but selling,” said Childs, who helps oversee the Janus Henderson Mortgage-Backed Securities exchange-traded fund
JMBS,
an actively managed $2 billion fund focused on highly rated securities with minimal credit risk.

“But we’re moving into an environment where supply continues to dwindle,” he said, given anemic refinancing activity and the dearth of new home loans being originated since 30-year fixed mortgage rates topped 7%.

The bulk of all U.S. mortgage bonds created in the past two decades have come from housing giants Freddie Mac
FMCC,
+0.66%,
Fannie Mae
FNMA,
+1.09%
and Ginnie Mae, with government guarantees, making the sector akin to the $25 trillion Treasury market. But unlike investors in Treasurys, investors in mortgage bonds also earn a spread, or extra compensation above the risk-free rate, to help offset its biggest risk: early repayments.

While homeowners typically take out 30-year loans, most also refinanced during the pandemic rush to lock in ultralow rates, instead of continuing to make three decades of payments on more expensive mortgages. If someone refinances, sells or defaults on a home, it leads to repayment uncertainty for bond investors.

“To put this another way, the biggest risk to mortgages is now off the table, yet spreads are at or near historic wides,” said Sam Dunlap, chief investment officer, Angel Oak Capital Advisors, in a new client note.

That spread is now far above the long-term average, topping levels offered by relatively low-risk investment-grade corporate bonds.

Agency mortgage bonds are offering far more spread that investment-grade corporate bonds. But these mortgage bonds will fully repay if borrowers default.

Janus Henderson Investors

Agency mortgage bonds typically are included in low-risk bond funds and can be found in exchange-traded funds. While they have been hard hit by the sharp selloff in long-dated Treasury bonds
BX:TMUBMUSD10Y

BX:TMUBMUSD30Y,
there has also been hope that the worst of the storm could be nearly over.

Goldman Sachs credit analysts recently said they favored the sector but warned in a weekly client note that it still faces “high rate volatility and a dearth of institutional demand.”

As evidence of the U.S. bond selloff, the popular iShares 20+ Year Treasury Bond ETF
TLT
recently sank to its lowest level in more than a decade. It also was on pace for a negative 10% total return on the year so far, according to FactSet. Janus Henderson’s JMBS ETF was on pace for a negative 2.7% total return on the year through Friday.

“Frankly, why they fit portfolios so well is that because the government backs agency mortgages, there is no credit risk,” Childs said. “So if a borrower defaults, you get par back on that. It just comes through as a typical payment.”

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October 13, 2023
Mortgage rates reach highest level since 2001 and are likely to go higher, Freddie Mac says

U.S. mortgage rates increased for the fifth week in a row, with the 30-year reaching the highest level since 2001.

The 30-year fixed-rate mortgage averaged 7.23% as of Aug 24, according to data released by Freddie Mac
FMCC,
+0.18%
on Thursday.

It’s up 14 basis points from the previous week — one basis point is equal to one hundredth of a percentage point.

The last time rates were this high was in June 2001.

A year ago, the 30-year was averaging at 5.55%.

The average rate on the 15-year mortgage rose to 6.55% from 6.46% last week. The 15-year was at 4.85% a year ago.

Freddie Mac’s weekly report on mortgage rates is based on thousands of applications received from lenders across the country that are submitted to Freddie Mac when a borrower applies for a mortgage.

Separate data by Mortgage News Daily said that the 30-year fixed-rate mortgage was averaging at 7.36% as of Thursday afternoon.

What Freddie Mac said: “Indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short-term,” Sam Khater, chief economist at Freddie Mac, said in a statement.

“As rates remain high and supply of unsold homes woefully low, incoming data shows that existing homes sales continue to fall,” he added. “However, there are slightly more new homes available, and sales of these new homes continue to rise, helping provide modest relief to the unyielding housing inventory predicament.

What are they saying? Other industry experts also believe rates could move higher.

“Earlier this year, it looked as though inflation was being brought under control and the Fed may be almost ready to declare victory… now, however, as inflation has ticked up and bond yields are rising amidst economic uncertainty, it is a different situation,” Lisa Sturtevant, chief economist at Bright MLS, said in a statement. “Instead of talking about rates falling to 6% this year, the question is how much above 7% are we going to go?”

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August 24, 2023
Home buyers flee the housing market as mortgage rates surge to the highest level since 2000

The numbers: Mortgage rates rose for the fourth week in a row to the highest level since 2000, as the economy continues to show strength.

Rates surged as the U.S. economy continued to show signs of resilience, which signal to the market that the U.S. Federal Reserve may not be done with rate increases.

The 30-year was averaging at 7.31%, which in part dampened demand for home-purchase mortgages to the lowest level since April 1995.

Demand for both purchases and refinancing fell. That overall pushed down the market composite index, a measure of mortgage application volume, the Mortgage Bankers Association (M.B.A.) said on Wednesday.

The market index fell 4.2% to 184.8 for the week that ended Aug. 18, relative to a week earlier. A year ago, the index stood at 270.1.

Key details: High mortgage rates are weighing on home buyers’ budgets due to an increase in borrowing costs. Many buyers fled the market as a result of rates rising over the last week. The purchase index, which measures mortgage applications for the purchase of a home, fell 5% from last week.

Rates hold little allure for homeowners hoping to refinance. The refinance index fell 2.8%.

Rates rose across the board.

The average contract rate for the 30-year mortgage for homes sold for $726,200 or less was 7.31% for the week ending August 18. That’s up from 7.16% the week before, the M.B.A. said. The 30-year is at the highest level since December 2000.

The rate for jumbo loans, or the 30-year mortgage for homes sold for over $726,200, was 7.27%, up from 7.11% the previous week.

The average rate for a 30-year mortgage backed by the Federal Housing Administration rose to 7.09% from 6.93%.

The 15-year rose to 6.72%, up from last week’s 6.57%.

The rate for adjustable-rate mortgages rose to 6.5% from last week’s 6.2%. The share of adjustable-rate mortgages rose to 7.6%, the highest level in five months.

The big picture: The housing market continues to be hammered by good economic news, which is pushing rates up and depressing home sales. Higher rates also discourage homeowners from selling, as their purchasing power erodes when they look for homes to buy.

As a result, both home-buying demand and supply of home listings continues to fall, bringing the market to a standstill. Until the economy shows signs of slowing, it’s likely that the housing market will remain in the doldrums.

What the M.B.A. said: “Applications for home purchase mortgages dropped to their lowest level since April 1995, as home buyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power,” Joel Kan, deputy chief economist and vice president at the M.B.A., said in a statement.

Kan added that there was an uptick in people using adjustable-rate mortgages. “Some home buyers are looking to lower their monthly payments by accepting some interest rate risk after the initial fixed period,” he said.

Market reaction: The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was above 4.3% in early morning trading Wednesday.

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August 23, 2023
Mortgage rates could hit 8%, economists say, citing a worrying sign not seen since the Great Recession

With mortgage rates firmly above 7%, homeownership has become much more expensive. But will rates go even higher?

Three experts told MarketWatch that if the economy continues to show signs of strength, and the U.S. Federal Reserve hikes its benchmark interest rate once again, rates could go up to 8%.

High rates have already taken a toll on the U.S. housing market. Even home builders, who have in recent months experienced strong demand from homebuyers, are reporting a drop in buyer traffic as those rising rates rattle their customers.

But experts also stressed that the U.S. economy is showing early signs of cooling, and that the rate of inflation is easing. That could lead to a slowdown — or even a drop — in mortgage rates. But such forecasts are not a guarantee, as Tuesday’s stronger-than-expected U.S. retail sales figures suggested.

How high can rates go?

Even though the 30-year fixed mortgage rate was averaging 7.26% as of Tuesday evening, the highest level since November 2022, economists say rates could go up further.

The 30-year is “at a critical stage,” Lawrence Yun, chief economist at the National Association of Realtors, told MarketWatch.

“If the 30-year-fixed mortgage rate can hold at a high mark of 7.2% — and the 10-year yield holds at 4.2% — then this would be the high for mortgage rates before retreating,” Yun said. “If it breaks this line and easily goes above 7.2%, then the mortgage rate reaches 8%.”

As of Tuesday afternoon, the 10-year Treasury note
BX:TMUBMUSD10Y
was above 4.2%.

“Mortgage rates could rise significantly if global investors demand higher yields for fixed-income assets,” Cris deRitis, deputy chief economist at Moody’s Analytics, told MarketWatch.

Currently, the spread between the 30-year fixed-rate mortgage and a 10-year Treasury bond is around 300 basis points, which is “elevated and highly unusual,” he said.

“‘Historically, the mortgage-rate spread has only been around this level only during periods of financial crisis such as the Great Recession or the early 1980s recession.’”

— Cris deRitis, deputy chief economist at Moody’s Analytics

“Historically, the mortgage-rate spread has only been around this level only during periods of financial crisis such as the Great Recession or the early 1980s recession,” deRitis added. “The historical average is closer to 175 basis points.”

If the 10-year continues to rise — and the U.S. Federal Reserve chooses to interest rates once again — it could go beyond 5%. If the spread stays elevated at 300 basis points, deRitis added, “a mortgage rate of 8% or more is a distinct possibility in the near term.”

Consumers seem to be prepared for 8% rates. In February, households surveyed by the New York Federal Reserve as part of its Survey of Consumer Expectations, found that they expect mortgage rates to rise to 8.4% by the following year, and 8.8% in three years’ time. Yet few saw the moment as an opportunity to buy.

To be clear, rates have been far higher in the past. In 1981, the 30-year mortgage rate went up to 18%, according to Freddie Mac
FMCC,
+31.97%.
That year, the rate of inflation was 10.3%, according to the Minneapolis Fed.

“So in theory, mortgage rates can go up as much,” Selma Hepp, chief economist at CoreLogic, told MarketWatch. “But I don’t think they’re gonna go much beyond where they are right now.”

The yearly rate of inflation in July was just 3.2%. There was runaway inflation in the early 1980s. Though the year isn’t over yet, it is highly unlikely that the rate will suddenly surge, as economists expect the cost of housing — one of the biggest drivers of inflation — to ease in the coming months.

What happens to housing if rates surge?

If the 30-year mortgage interest rate reached 8%, there would be serious consequences for the housing market, Yun said. “At 8%, the housing market will re-freeze, with fewer buyers and far fewer sellers,” he added.

But don’t expect high rates to hurt home prices just yet, Yun added: “As long as the job market doesn’t turn negative, then home prices will be stable — though home sales will take another step downward. If there is a job-cutting recession, then home prices will fall as some will be forced to sell while there are few buyers.”

Other experts said that high rates have already taken a toll on the U.S. housing sector. “A mortgage rate in excess of 6% has already sidelined a large number of potential homebuyers, especially first-time home buyers,” deRitis said.

He noted that the monthly mortgage payment for a median-priced home at the prevailing 30-year mortgage rate has risen from close to $1,100 per month in January 2019 to over $2,100 today. “At 8%, the monthly payment would rise to over $2,300, excluding an even larger number of potential buyers with above-average incomes,” deRitis added.

High rates also discourage homeowners from selling, since they may have to surrender an ultra-low mortgage with a low monthly payment for a high rate. They may end up with a smaller budget to purchase a home, or worse, not find any listings at all, given an ongoing inventory crunch.

With high rates, many home buyers may be priced out of the market. Yet some buyers — particularly baby boomers — who have the means to put in all-cash offers on homes are keeping home prices elevated, Hepp said.

So who would be able to buy and sell? Cash buyers. “They tend to be older people like baby boomers who own their homes free and clear,” she added. “If they live in more expensive areas, like anywhere in California, they can sell their home and walk away with in excess of $500,000. And that in some markets buys them two homes.”

deRitis said that the ultimate fate of home prices falls on the strength of the job market. Even though rates are high for now, home prices may not fall significantly, as some buyers can still purchase homes with cash, he added.

But “if the labor market should weaken and unemployment rise, home foreclosures would rise,” deRitis added, “placing downward pressure on home prices.”

“So the housing market is definitely suffering from high rates,” Hepp said. “But I think even higher rates would be pretty devastating for the housing market.”

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August 17, 2023
‘The housing recession is over,’ real-estate group says, as pending home sales tick up for the first time in 4 months

The numbers: Home sales inched up for the first time in four months, even as the U.S. housing market continues to deal with a dearth of listings.

Pending home sales rose by 0.3% in June from the previous month, according to the monthly index released Thursday by the National Association of Realtors.

The figure exceeded expectations on Wall Street. Economists were expecting pending home sales to fall 0.5% in June.

Transactions were still down 15.6% from last year.

Pending home sales reflect transactions where a contract has been signed for the sale of an existing home but the sale has not yet closed. Economists view it as an indicator of the direction of existing-home sales in subsequent months.

Big picture: Home sales rose as the housing market contends with excess buyer demand and a shortfall in the supply of homes for sale.

Real-estate agents are looking to home builders to fill the gap as rate-locked homeowners hold out on selling. New-home sales surged in May, and while they lost some momentum in June, the broader trend is still upward.

The prices of new homes, which are generally seen as more expensive, are also coming down. The gulf between the median price of a new home and of an existing home narrowed in June, based on data from the NAR and the federal government.

What the real-estate experts said: “The recovery has not taken place, but the housing recession is over,” NAR chief economist Lawrence Yun said. “The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply.”

The NAR also said it expects rates for 30-year mortgages to average 6.4% this year and to fall to 6% in 2024.

The NAR also expects existing-home sales to fall 12.9% in 2023 from the previous year, to 4.38 million, before recovering in 2024 to a rate of 5.06 million.

The group also expects home prices to hold steady this year, falling only slightly by 0.4% to $384,900, before rising 2.6% next year to $395,000.

“The West — the country’s most expensive region — will see reduced prices, while the more affordable Midwest region is likely to see a small positive increase,” Yun added.

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July 27, 2023
HELOCs are back. Cash-strapped borrowers are tapping into a $33 trillion pile of home equity.

Goodbye pandemic refi cash-outs. Hello HELOCs?

Home-equity lines of credit (HELOCs) and second-lien mortgages have been staging a notable comeback as U.S. homeowners look for liquidity and ways to monetize the pandemic surge in home prices, according to BofA Global.

It used to be that borrowers sitting on an estimated $33 trillion pile of equity built up in their homes could simply refinance and pull out cash, until the Federal Reserve’s rapid rate hikes began squelching the option.

Now, with mortgage rates above 6%, and the Fed penciling in two more rate hikes in 2023, cash-strapped homeowners have been seeking out alternatives to extract cash from their properties.

While cash-out refinances tumbled 83% in the fourth quarter of 2022 from a year before, HELOCs rose 7% and home-equity loans grew 31%, according to the latest TransUnion data.

“Borrower demand remains high, particularly given household budgets have been pressured by rising food and energy costs,” a BofA Global credit strategy team led by Pratik Gupta’s, wrote in a weekly client note.

Risky loans to subprime borrowers and home equity products helped precipitate the 2007-2008 global financial crisis and the era’s wave of devastating home foreclosures.

At the time, households had more than $1.2 trillion of home equity revolving and available credit (see chart), whereas the figure was closer to $900 billion in the first quarter of this year.

Home equity products are making a big comeback as households seek liquidity

BofA Global, New York Fed Consumer Credit Panel/Equifax

The pandemic saw home prices surge, giving a big boost to home equity levels. The Urban Institute pegged home equity in the U.S. at $33 trillion as of May, up from a post-2008 peak of about $15 trillion.

BofA analysts argued this time home equity products look different, with roughly $17 trillion of tappable equity across 117 million U.S. homeowners, and most borrowers having high credit scores and low rates.

“The vast majority of that — $14 trillion — is from the cohort of homeowners who own their homes free & clear,” Gupta’s team wrote.

Another $1.6 trillion of equity could be available from Freddie Mac and Fannie Mae borrowers, according to his team, which pegged an estimated 94% of all outstanding U.S. first-lien home mortgages now below 4% rates.

Major banks own the bulk of home equity balances (see chart), led by Bank of America Corp.
BAC,
+1.23%,
PNC Bank
PNC,
+0.57%,
Wells Fargo,
WFC,
-0.05%,
JPMorgan Chase
JPM,
+0.24%
and Citizens
CFG,
+0.35%,
according to the team, which notes several other major banks appear to have hit pause on their programs.

A smaller portion of HELOCs and second-lien mortgages have been securitized, or packaged up and sold as bond deals, while nonbank lenders have been offering the products as well.

Stocks closed lower Monday, taking a pause from a recent rally, as investors monitored weekend tumult in Russia. The Dow Jones Industrial Average
DJIA,
-0.04%
was less than 0.1% lower, while the S&P 500 index
SPX,
-0.45%
was off 0.5% and the Nasdaq Composite
COMP,
-1.16%
fell 1.2%, according to FactSet.

Related: The economy was supposed to cave in by now. It hasn’t — and GDP is set to rise again.

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June 26, 2023
U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on

The numbers: Construction on new American homes jumped 21.7% in May, as homebuilders ramp up building single-family homes to meet strong demand from buyers.

Housing starts rose to a 1.63 million annual pace last month from 1.34 million in April, the government said Tuesday. That’s how many houses would be built over an entire year if construction took place at the same rate in every month as it did in May.

Economists were expecting a slight decline of about 0.8%. The numbers are seasonally adjusted.

This is the second month in a row that starts are up. The pace of construction was the highest since last April, when starts hit a 1.8 million pace.

The surge in construction this spring was led by the Midwest.

Both single and multi-family construction rose in May. Keen interest from would-be home buyers is creating strong demand for new homes. These buyers continue to face a lack of options in the resale market.

Building permits, a sign of future construction, rose 5.2% to a 1.49 million rate.

Key details: As the weather warms up, construction pace has picked up considerably.

The construction pace of single-family homes rose 18.5% in May while apartment building rose 28.1%.

Home builders were most active in the Midwest, where housing starts rose by 67% from the previous month. The Midwest also led the nation in terms of single-family construction.

Permits for single-family homes rose 5.2% in May while permits in buildings with at five units or more rose 7.8%.

Housing starts are up on an annual basis for the first time in nearly a year. The annual rate of total housing starts rose 5.7% from last May.

Big picture: New construction is a bright spot in an otherwise despondent housing market. For the buyers who brave 6% mortgage rates, there are few options in the resale market, which continues to funnel demand for new homes.

In fact, demand is so strong that homebuilders are pulling back on sales incentives, such as price cuts, the National Association of Home Builders reported on Monday.

Builders also reported that they were feeling upbeat about the housing market for the first time in nearly a year.

What are they saying? “To say that we did not see this one coming would not even come close to capturing the degree to which the May residential construction data caught us off guard,” Richard Moody, senior vice president and chief economist at Regions Financial Corporation, wrote in a note.

“This is without question an exaggeration of the underlying reality and a reminder that the housing starts data are among the most volatile and random of the government’s major economic indicators,” Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, wrote in a note.

“Having said that,” he added, “the housing sector broadly appears to be healing remarkably fast after enduring a historic shock in affordability last year, when 30-year mortgage rates more than doubled.”

Market reaction: U.S. stocks
DJIA,
-0.59%

SPX,
-0.39%
were down in early trading on Tuesday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.721%
rose above 3.7%.

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June 20, 2023
Mortgage rates fall to lowest level in six weeks

The numbers: Mortgage rates slide down to the lowest level in six weeks as consumers feel uncertain about the state of the U.S. economy.

The 30-year fixed-rate mortgage averaged 6.32% as of March 30, according to data released by Freddie Mac on Thursday.

That’s down 10 basis points from the previous week — one basis point is equal to one hundredth of a percentage point.

The 30-year was last at this level in mid-February.

Last week, the 30-year was at 6.42%. Last year, the 30-year was averaging at 4.67%.

The average rate on the 15-year mortgage fell to 5.56%, from 5.68% the previous week. The 15-year was at 3.83% a year ago.

Freddie Mac’s weekly report on mortgage rates is based on thousands of applications received from lenders across the country that are submitted to Freddie Mac when a borrower applies for a mortgage.

Separate data by Mortgage News Daily said that the 30-year fixed-rate mortgage was averaging at 6.61% as of Thursday morning.

What Freddie Mac said: “Over the last several weeks, declining rates have brought borrowers back to the market but, as the spring homebuying season gets underway, low inventory remains a key challenge for prospective buyers,” Sam Khater, chief economist at Freddie Mac, said in a statement.

Market reaction: The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.551%
was trading below 3.6% during the afternoon trading session on Thursday.

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March 30, 2023
U.S. existing-home sales fall for the eleventh straight month in December

The numbers: U.S. existing-home sales fell 1.5% to a seasonally adjusted annual rate of 4.02 million in December, the National Association of Realtors said Friday.

This is the 11th straight monthly decline in existing-home sales. The losing streak is the longest since NAR began tracking sales in 1999.

Economists polled by the Wall Street Journal were expecting existing-home sales to drop to 3.95 million.

The level of sales activity was lowest since November 2010, in the midst of the foreclosure crisis in America.

Compared with December 2021, home sales were down 34%.

Total sales of existing homes in 2022 were down 17.8% from the previous year. Last year, 5.03 million existing homes were sold, which is the lowest level since 2014.

The last time existing home sales dropped by this magnitude was in 2008.

Key details: The median price for an existing home fell to $366,900 in December, from $370,700 in November.

The number of homes on the market fell 13.4% to 970,000 units in December.

Expressed in terms of the months-supply metric, there was a 2.9-month supply of homes for sale in December, down from the previous month. Before the pandemic, a four- or five-month supply was more the norm.

Homes remained on the market for 26 days on average, up from 24 days in November. Pre-pandemic, the average time for homes to remain on the market was a month.

Sales of existing homes mostly fell across the country, led by the South, which saw a 2.2% drop. Sales were unchanged in the West.

All-cash transactions made up 28% of all transactions. About 31% of homes were sold to first-time home buyers, up from the previous month.

Big picture: Mortgage rates have moved lower, and many buyers are coming back to the real-estate market.

A small dip in rates prompted a 28% surge in mortgage demand earlier this week.

So with rates continuing to move downwards, sales may likely rebound in the next few months, breaking an 11-month losing streak.

But the market still has to figure out inventory, since there are so few homes for sale on the market.

What the realtors said: “We really need to begin to address this supply issue,” Lawrence Yun, chief economist at the National Association of Realtors said.

Yun said that overall, homeowners have enjoyed more in home price appreciation versus their 401k performance in the stock market.

What are they saying? Even though sales dropped considerably, “this result was somewhat better than expected,” Stephen Stanley, chief economist at Amherst Pierpont, wrote in a note.

And as rates move lower, that will “help to boost demand for homes generally,” Stanley added, “but it will also lessen the impact of homeowners being ‘trapped’ in their current locations.”

Market reaction: Stocks were up in early trading on Friday. The yield on the 10-year note
TMUBMUSD10Y,
3.479%
rose above 3.45%.

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January 20, 2023
U.S. pending home sales fall 4% in November to the lowest level since April 2020

The numbers: U.S. pending-home sales fell 4% in November, which is the sixth straight monthly drop, according to the index released Wednesday by the National Association of Realtors (NAR).

The index was last at this level in the midst of the pandemic lockdown, in April 2020.

Analysts polled by the Wall Street Journal had forecast the pending home sales index to drop by 1.8%.

Contract signings fell in all regions across the country.

Pending home sales reflect transactions where the contract has been signed for an existing-home sale, but the sale has not yet closed.

Economists view it as an indicator for the direction of existing-home sales in subsequent months.

Key details: Compared with a year earlier, transactions were down by 37.8%.

On a monthly basis, pending sales fell in all four major U.S. regions, led by the Northeast, where the index fell by 7.9%, followed by the Midwest, the South and the West.

But pending home sales fell the most since last November in the West, by 45.7%.

Pending home sales have fallen in all but one month in 2022.

Big picture: The housing market continues to stumble through 2022, as elevated mortgage rates keep buyers out of the market.

Buyers are finding it hard to find an existing home for sale, as sellers hold on to their homes tied to ultra-low mortgage rates.

November’s data is also tied to the period of time when mortgage rates were above 7%.

What the realtors said: “With mortgage rates falling throughout December, home-buying activity should inevitably rebound in the coming months and help economic growth,” NAR Chief Economist Lawrence Yun said.

What they’re saying: “Housing markets have entered a winter freeze,” George Ratiu, senior economist at Realtor.com, said in a statement.

“With prices for existing homes still elevated … and mortgage rates above 6%, homebuyers are finding much of today’s real estate landscape inaccessible,” he added.

Ratiu estimated that monthly mortgage payment for a median-priced home has gone up by $780 since last year.

Market reaction: The Dow Jones Industrial Average
DJIA,
-1.10%
and the S&P 500
SPX,
-1.20%
were mixed in early trading on Wednesday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.872%
rose above 3.8%.

(Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.)

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December 28, 2022
Builder sentiment fell every single month in 2022. Builders say there’s a silver lining.
The numbers: The National Association of Home Builders’ monthly confidence index fell two points to 31 in December, the trade group said on Monday.

It’s the 12th month in a row that the index has fallen.

Outside of the pandemic, the December reading of 31 is the lowest level since mid-2012.
A year ago, the NAHB index stood at 84. The index’s 12-month drop is a new record.

But it’s not the biggest drop, the NAHB said. The drop in builder confidence between the end of 2004 and the start of 2009 was sharper; the index fell from 71 to 8 in that span.

Key details: The three gauges that underpin the overall confidence index were mixed:

The gauge that marks current sales conditions fell by 3 points.

The component that assesses sales expectations for the next six months rose by 4 points.

And the gauge that measures traffic of prospective buyers was unchanged from last month.

All four NAHB regions posted a drop in builder confidence, led by the South and the Northeast.

Big picture: While builders continue to struggle to find buyers with the current rate environment, they’re also seeing a light at the end of the tunnel.

Buyers are slowly coming back to the table as mortgage rates are no longer above 7%, and home price growth is moderating.

And with 62% of builders offering incentives like mortgage rate buy-downs, paying points for buyers, and even price reductions, that luring some buyers, per the NAHB.

About 35% of builders were dropping home prices in December, the NAHB said, with the average price reduction being 8%.

What the NAHB said: “The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” Robert Dietz, chief economist at the NAHB, said in a statement.

“Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations,” he added.

But the NAHB is expecting “weaker housing conditions” to persist in 2023, and only forecasts a full recovery in 2024, Dietz said. There is still a gap of 1.5 million housing units, they estimated nationwide.

Nonetheless, the path to recovery is hard, the builders stressed.

“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” Jerry Konter, chairman of the NAHB and a home builder and developer from Savannah, Ga., said in a statement.

“With construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices,” Konter added.

What are they saying? “We think home sales will find a floor by the end of the first quarter, helped by the near-75 [basis point] decline in mortgage rates since late October,” Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, wrote in a note.

“But a meaningful recovery is still a long way off, and home prices have much further to fall,” he added.

Market reaction: The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.597%
rose to 3.57% on Monday morning.

While the SPDR S&P Homebuilders ETF
XHB,
-1.67%
traded slightly lower during the morning session, as well as big home builder stocks like D.R. Horton Inc
DHI,
-1.44%,
Toll Brothers
TOL,
-0.87%,
and Lennar
LEN,
-2.28%.
Source link
December 19, 2022
Home builders sentiment index falls for record tenth month in a row in October. Home builders say the ‘situation is unhealthy and unsustainable.’
The numbers: The National Association of Home Builders’ (NAHB) monthly confidence fell 8 points to 38 in October, the trade group said on Tuesday.

It’s the tenth month in a row that the index has fallen.

Outside of the pandemic, the October reading of 38 is the lowest level since August 2012.
A year ago, the index stood at 80.

The index’s ten-month drop is a new record. The index last fell for 8 months straight in 2006 and 2007.

Key details: All three gauges that underpin the overall builder-confidence index fell.

The gauge that marks current sales conditions fell by 9 points.

The component that assesses sales expectations for the next six months fell by 11 points.

And the gauge that measures traffic of prospective buyers fell by 6 points.

All four NAHB regions posted a drop in builder confidence, led by the south and the west.

It’s also likely that this year will be the first time since 2011 that single-family starts see a decline, the NAHB added.

Big picture: Builders continue to struggle to find buyers with the current rate environment.

Now they’re saying they’re worried about that depressed demand impacting supply moving forward.

Specifically, they’re concerned about housing affordability worsening, with potentially fewer new homes being built in the future.

Mortgage rates have doubled from last year, now exceeding 7%, which has considerably cooled buyer demand.

Home price growth is moderating, but prices have not come down substantially — yet.

The median sales price for a new home was $436,800 in August, according to the U.S. Census Bureau.

What the NAHB said: Builders are expecting single-family starts to fall for the first time in 11 years — and expect additional declines through 2023, said NAHB Chief Economist Robert Dietz, due to the Federal Reserve’s projected rate hikes to control inflation.

“While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates, and ongoing elevated construction costs continue to price out a large number of prospective buyers,” he added.

“This situation is unhealthy and unsustainable,” Jerry Konter, a home builder and developer from Savannah, Ga. and the NAHB’s chairman, said in a statement.
“Policymakers must address this worsening housing affordability crisis,” he added.

What are they saying? “The housing sector – sentiment, building activity and sales – is collapsing under the weight of a rapid increase in interest rates and elevated prices, which are crimping affordability and demand,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a note.

So expect building activity to be depressed, she added.

Market reaction: The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.989%
fell to 3.98% on Tuesday morning.

While the SPDR S&P Homebuilders ETF
XHB,
+2.15%
traded slightly higher during the morning session, and the big home-builder stocks, from D.R. Horton Inc.
DHI,
+2.90%
to Toll Brothers
TOL,
+1.87%
to Lennar
LEN,
+2.97%,
edged higher.
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October 18, 2022
Mortgage rates march towards 7%, reaching highest level since 2007

The numbers: Mortgage rates continue to march towards 7%, continuing to pressure potential homeowners looking to buy a home.

The 30-year fixed-rate mortgage averaged 6.7% as of Sept. 29, according to data released by Freddie Mac
FMCC,
+0.75%
on Thursday.

Mortgage rates are up as the Federal Reserve pushed key interest rates up to deal with the worst inflation the country has seen in 40 years.

That’s up 41 basis points from the previous week — one basis point is equal to one hundredth of a percentage point, or 1% of 1%.

The rise in rates is bad news for prospective buyers, as it potentially adds hundreds of dollars to their mortgage payments.

Mortgage rates are now at highs last seen since mid-2007. To put the latest rate in perspective: A year ago, the 30-year was at 3.01%.

“Mortgage rates are now at highs last seen since mid-2007. To put the latest rate in perspective: A year ago, the 30-year was at 3.01%.”

Bloomberg’s chief economist Michael McDonough said a $2,500 monthly mortgage payment — with 20% down — would have gotten a buyer a $758,000 home last year.

This year? You’d get a lot less house — with $2,500 per month, you’d only be able to afford a $476,000 home, he wrote on Twitter
TWTR,
-1.12%.

The median price of an existing home in the U.S. was $389,500 in August, down from $403,800 the previous month, the National Association of Realtors said.

The average rate on the 15-year mortgage also rose over the past week to 5.96%. The adjustable-rate mortgage averaged 5.3%, up from the prior week.

“The uncertainty and volatility in financial markets is heavily impacting mortgage rates,” Sam Khater, chief economist at Freddie Mac, said in a statement.

Khater added that Freddie Mac’s survey of lenders revealed a large dispersion in rates, so home buyers should shop around with lenders to find a good quote.

Mortgage applications also fell in the latest week, as cautious buyers continue to pull back as rates march towards 7%.

The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.784%
rose slightly above 3.8% in morning trading on Thursday.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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September 29, 2022