Mortgage Matters: Weekly Mortgage Applications Fall As Homebuyers Drop Out

“The housing market has tilted sharply in favor of sellers over the past two years, but there are very early preliminary signs that the winds maybe starting to shift ever-so-slightly…”

by Brian Barker

Despite a slight drop in mortgage interest rates, pricey properties remained unenticing for homebuyers.

According to the Mortgage Bankers’ Association report, the industry saw a 2 percent drop in Mortgage application volume during the course of last week. That volume is 19 percent lower than what it was for the same week a year ago, when interest rates were lower.

This drop has been attributed to a fall-off in homebuyers. Home purchase loan applications dropped 3 percent compared with last week to reach its lowest since February.

Applications were also 3 percent lower than for the previous year. The industry has been boosting high annual purchase volume trends for much of the year, however, this has changed for five consecutive weeks, and the year- over-year drop is widening.

The problem can be traced to weakening home affordability and a supply-demand imbalance. As home prices continue to soar, the supply of homes for sale, even though increasing ever so slightly each month, is still quite low, especially at the entry level.

More than 70 percent of renters fantasize about having their own home, with 66 percent of them saying that being unable to save for a down payment is the number one reason holding them back, according to a recent Zillow survey.

Last week saw a slight decline in mortgage rates; however, it was not enough to improve affordability to an extent. There was a decrease to 4.8 percent from 4.84 percent in the average contract interest rate for 30-year fixed-rate mortgages with conforming balances ($453, 100 or less) for loans with 20 percent down payments.

MBA associate vice president of economic and industry forecasting, Joel Kan said that, “strong inflation was overshadowed by ongoing trade tensions between the U.S. and China, along with concerns over Turkey’s currency situation, and this pushed Treasury rates down by 3 basis points last week.”

It has always been the norm for home refinance loan applications to increase as a result of a drop in interest rates; however this was not the case last week. Refinance volume remained at a stalemate for the week – 36 percent lower than the same week a year ago.

The release of the monthly retail sales data, however, could change mortgage rates that have remained at their lowest this week in three weeks.

Housing Tips Back to A Buyer’s Market as Sellers cut Prices

The market seems to have reached its turning point in terms of affordability after years of juicy home price gains, and the sellers are in turn often responding by lowering prices.

In June alone, approximately 14 percent of all listings had a price cut, and this is higher than the recent low of 11.7 percent the market experienced at the end of 2016 (Zillow). Also, looking at the 35 largest U.S. metropolitan markets, home price growth has slowed down in almost half of them.

Overall, affordability together with rising mortgage rates are the reason for this change. As the housing market started to recover from its historic crash during the last decade, home prices began to slowly rise. Then, there was a sudden take off in the last few years.

This trend was spurred on by the difference in the supply and demand needs within the market. As millennials reached the home buying age, home builders failed to meet and are still not meeting the rising demand.

Plus, during the slump, millions of single- family homes were lost to foreclosure, and were in turn purchased by investors who converted them into single-family rentals, draining the for- sale stock further. The market in that period suffered severe shortage even as demand was getting off the ground. This meant high prices- which have persisted until now.

Aaron Terrazas, a senior economist at Zillow remarked that, “The housing market has tilted sharply in favor of sellers over the past two years, but there are very early preliminary signs that the winds maybe starting to shift ever-so-slightly. A rising share of on market listings are seeing price cuts, though these price cuts are concentrated at the most expensive price-points and primarily in markets that have seen outsize price gains in recent years.”

Though he admits that it is too soon to call this a buyers’ market nationally, “The frenetic pace of the housing market over the past few years is starting to turn towards a more normal trend.”

Source: CNBC

Brian Barker,
BBVA Compass
A Corridor News Contributor