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Mortgage application activity rose last week, reversing a series of declines that started in late June. The increase was modest; the Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, ticked up 1.2 percent on a seasonally adjusted basis, but both purchasing and refinancing volumes moved higher. On an unadjusted basis, the Composite Index increased 1 percent compared with the previous week. The Refinance Index increased 2 percent from the previous week, although it was still 82 percent lower than the same week one year ago. The share of applications that were for refinancing grew to 30.8 percent from 30.7 percent the previous week. The Purchase Index rose 1 percent both before and after seasonal adjustment. The unadjusted index was 16 percent lower than the same week one year ago. “Mortgage rates declined last week following another announcement of tighter monetary policy from the Federal Reserve, with the likelihood of more rate hikes to come,” according to Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Treasury yields dropped as a result, as investors continue to expect a weaker macroeconomic environment in the coming months. The 30-year fixed rate saw the largest weekly decline since 2020, falling 31 basis points to 5.43 percent. The drop in rates led to increases in both refinance and purchase applications, but compared to a year ago, activity is still depressed. Lower mortgage rates, combined with signs of more inventory coming to the market, could lead to a rebound in purchase activity.”
While annual price increases are still wildly aggressive, monthly gains indicate that the brakes may be on. CoreLogic says nationwide, home prices were up 18.3 percent in June compared to a year earlier, the 125th straight annual gain, however, the monthly change decelerated for the second time. The gain in CoreLogic’s Home Price Index (HPI) from May to June was 0.6 percent compared to the April to May growth of 1.8 percent. The company projects significant slowing in appreciation over the next year, although this has been their expectation for some time. The CoreLogic HPI Forecast indicates that home prices will increase another 0.6 percent from June 2022 to July 2022 but will only rise 4.3 percent by June 2023. Selma Hepp, CoreLogic’s Deputy Chief Economist, said “Signs of a broader slowdown in the housing market are evident, as home price growth decelerated for the second consecutive month. This is in line with our previous expectations and given the notable cooling of buyer demand due to higher mortgage rates and the resulting increased cost of homeownership. Nevertheless, buyers still remain interested, which is keeping the market competitive — particularly for attractive homes that are properly priced.” This graph shows a comparison of the national year-over-year percent change for the CoreLogic HPI and CoreLogic Case-Shiller Index from 2000 to present month with forecasts one year into the future. We note that both the CoreLogic HPI Single Family Combined tier and the CoreLogic Case-Shiller Index are posting positive, but moderating year-over-year percent changes, and forecasting gains for the next year.
Pending home sales broke out of a seven-month slump in May, gaining 0.7 percent. If this were baseball, we might now call it a “balk.” The National Association of Realtors® (NAR) announced this morning that its June Pending Home Sales Index (PHSI) plunged 8.6 percent. The index fell from 99.9 in May to 91.0, leaving it 20 percent lower than in June 2021. NAR said the reversal came “as escalating mortgage rates and housing prices impacted potential buyers.” The PHSI, based on new contracts for the purchase of existing residential units, is a leading indicator of closed sales of single-family houses, condominiums, and cooperative apartments over the following one to two months. An index of 100 is equal to the level of contract activity in 2001. [pendinghomesdata] “Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” said NAR Chief Economist Lawrence Yun. “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.” Analysts may have thought the May PHSI was already signaling such stabilization. Those polled by Econoday had expected the index to decline by only 1.0 percent. Trading Economics had been slightly closer to the mark with a forecast of -2.1 percent. According to NAR, buying a home in June was about 80 percent more expensive than in June 2019. Nearly a quarter of buyers who purchased a home three years ago would be unable to do so now because they no longer earn the qualifying income to buy a median-priced home today.