Today brought the release of the two biggest home price indices (HPIs) for the month of July from S&P Case-Shiller and FHFA. Both HPIs showed a marked deceleration in home price appreciation in June with Case Shiller up only 0.2% and FHFA up 0.1%. Both moved into negative territory in July with Case Shiller down 0.4% and FHFA down 0.6%. The notion of falling home prices is potentially troubling to those who lived though the Great Financial Crisis (GFC) in 2008. But while the present day price contraction has yet to fully play out, there are still significant differences from 2008. In fact, even if the FHFA price index (the broader of the two) dropped by roughly 20% as it did by the end of 2008, it would merely take year-over-year numbers back to flat. While "flat" year-over-year home price appreciation doesn't sound so bad (and probably wouldn't be so bad in the big picture), getting there from here wouldn't be fun in terms of home equity dollars. In 2008, a 20% decline was around 50k for the average home. Now it would be 80k. Someone who bought a 500k home near the peak could own a 400k home if a 20% correction plays out. But that is far from a certainty at this point--especially with persistent inventory issues becoming worse in the past 2 weeks as sellers balk at the idea of leaving their existing mortgage rate for something more than twice as high. All this in addition to the fact that mortgage/housing markets have been operating in an infinitely more sustainable way than in the years leading up to the GFC. The biggest issue/problem was an external one (pandemic and the associated fallout on the housing supply chain) and its worst offense was causing prices to appreciate too quickly.
Seven straight months of slowing sales has reduced existing home transactions by nearly 20 percent from the same point in 2021. The National Association of Realtors® (NAR) said on Wednesday that August sales of preowned single-family houses, townhouses, condominiums, and cooperative apartments were at a seasonally adjusted annual rate of 4.80 million units. This is a decline of 0.4 percent from July and is 19.9 percent lower than the August 2021 pace. There is a bright spot; the size of the August decline, Over the previous three months, existing home sales had fallen an average of 4.7 percent. Sales were also slightly higher than anticipated. Analysts polled by both Econoday and Trading Economics had forecasted sales at 4.7 million Single-family home sales were down 0.9 percent to a seasonally adjusted annual rate of 4.28 million, 19.2 percent below the level a year earlier. Existing condominium and co-op sales were up 4.0 percent compared to July, but 24.6 percent lower year-over-year. [existinghomesdata] “The housing sector is the most sensitive to and experiences the most immediate impacts from the Federal Reserve’s interest rate policy changes,” said NAR Chief Economist Lawrence Yun. “The softness in home sales reflects this year’s escalating mortgage rates. Nonetheless, homeowners are doing well with near nonexistent distressed property sales and home prices still higher than a year ago.” August marked the 126th month of year-over-year price increases, the longest-running streak on record. Price gains, however, are clearly moderating from the record high median of $413,800 posted in June. The median price for existing units of all types rose 7.7 percent year-over-year in August, to $389,500. During the first few months of this year, rate gains exceeded 15 percent. The median existing single-family home price was $396,300, up an annual 7.6 percent. The median existing condo price was $333,700, a markup of 7.8 percent.
Mortgage application activity increased for the first time in six weeks during the period ended September 16 although the prior week had been shortened by a major holiday weekend. The Mortgage Bankers Association said its Market Composite Index, a measure of mortgage loan application volume, increased 3.8 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 14 percent compared with the previous week. The Refinance Index jumped 10 percent, its largest single week gain since late January, but was still 83 percent lower than the same week one year ago. Refinance applications represented 32.5 percent of total activity, up from 30.2 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index was up slightly for the second week, rising 1 percent. The unadjusted version was 11 percent higher on a weekly basis but was down 30 percent on an annual basis. [purchaseappschart] Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting commented, “Treasury yields continued to climb higher last week in anticipation of the Federal Reserve’s September meeting, where it is expected that they will announce – in their efforts to slow inflation – another sizable short-term rate hike. “Mortgage rates followed suit last week, increasing across the board, with the 30-year fixed rate jumping 24 basis points to 6.25 percent – the highest since October 2008. As with the swings in rates and other uncertainties around the housing market and broader economy, mortgage applications increased for the first time in six weeks but remained well below last year’s levels, with purchase applications 30 percent lower and refinance activity down 83 percent. The weekly gain in applications, despite higher rates, underscores the overall volatility right now as well as Labor Day-adjusted results the prior week.”
Residential construction numbers were mixed in August. Home builders apparently worked on drawing down their backlogs of permits rather than seeking new ones while construction starts soared. The U.S. Census Bureau and Department of Housing and Urban Development report that permits were issued at a seasonally adjusted annual rate of 1.517 million compared to a rate of 1.685 million in July, a decline of 10.0 percent month-over-month and 14.4 percent below the August 2021 rate. Single family permits decreased from 932,000 to 899,000, a 3.5 percent decline, and multifamily permits dropped 18.5 percent to 571,000. Single family permitting is now 15.3 percent off the prior August pace and multifamily permitting is down 14.5 percent. There were 136,400 permits issued during the month, up from 134,400 in July. Single family permits totaled 80,900 compared to 75,600 the previous month. [housingpermitschart] So far this year (YTD) there have been 1.176 construction permits issued, nearly identical to the number at the same point in 2021. Single family permits are down 6.6 percent to 726,700 while permits for units in buildings with five or more have increased by 14.4 percent to 413,900. Housing starts jumped 12.2 percent in August from a downwardly adjusted 1.404 million to 1.575 million in August. This is nearly identical to the rate of starts in August 2021. Single-family starts rose 3.4 percent to 935,000 but remain 14.6 percent below the 1.095 million rate of starts a year earlier. Multifamily starts increased by 28.6 percent and 31.0 percent from the two earlier time periods. [housingchart]
The National Association of Home Builder’s (NAHB’s) index measuring the confidence of builders in the new home market has fallen for the ninth straight month. A 3-point month-over-month drop put the NAHB/Wells Fargo Housing Market Index (HMI) at 46 in September. NAHB’s chief economist Robert Dietz said, with the exception of the period immediately after the onset of the 2020 pandemic, the index was at its lowest point since May 2014. The continuing decline in the index is another sign that elevated interest rates, persistent building material supply chain disruptions and high home prices are combining to take a toll on affordability, Dietz said. The HMI is projecting an ongoing decline in the volume of single-family housing starts, as noted in the graph below. The HMI is derived from a monthly survey that gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. All three of the index’s components posted fell from their August levels. The component derived from questions about current sales conditions dropped 3 points to 54, while future sales expectations and perceptions of buyer traffic were each down 1 point to 46 and 31, respectively.
Only a slight uptick in purchase mortgage applications kept all last week’s volume indicators from falling for the fifth straight time. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, decreased 1.2 percent on a seasonally adjusted basis during the week ended September 9. The results include an adjustment for the observance of Labor Day. On an unadjusted basis, the Index decreased 12 percent compared with the previous week. The Refinance Index decreased 4 percent from the previous week and was 83 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 30.2 percent of total applications from 30.7 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index ticked up 0.2 percent, its first gain since late July. The unadjusted Purchase Index decreased 12 percent compared with the previous week and was 29 percent lower than the same week one year ago. [purchaseappschart] “The 30-year fixed mortgage rate hit the six percent mark for the first time since 2008 – rising to 6.01 percent – which is essentially double what it was a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Higher mortgage rates have pushed refinance activity down more than 80 percent from last year and have contributed to more homebuyers staying on the sidelines. Government loans , which tend to be favored by first-time buyers, bucked this trend and increased over the week, driven mainly by VA and USDA lending activity .”
Mortgage credit access tightened again in August, a trend that has been nearly continuous since the onset of the pandemic more than two years ago. The Mortgage Bankers Association said its Mortgage Credit Availability Index (MCAI) slipped 0.5 percent from its July level to 108.3. A decline in the index indicates that lending standards are tightening while an increase points to a loosening of credit. The MCAI and each of its four components are based on data related to borrower eligibility (credit scores, loan types, loan-to-value rations, etc.) from over 95 lenders and investors. The data is made available by ICE Mortgage Technology. The Government MCAI was essentially unchanged from the prior month while the Conventional MCAI decreased 1.0 percent. That index has two components; the Jumbo MCAI dipped 0.7 percent and the Conforming Index fell by 1.2 percent. “Mortgage credit availability declined slightly in August, as investors reduced their offerings of ARM and non-QM loan programs,” according to Joel Kan, MBA’s Associate Vice President of Economic and Industry. “With overall origination volume expected to shrink in 2022, some lenders continue to streamline their operations by dropping certain loan programs to simplify their offerings. Additionally, with a worsening economic outlook and signs of cooling in home-price growth, the appetite for riskier loan programs has been reduced,” said The MCAI and each of its components reflect summary measures which indicate the availability of mortgage credit at a point in time. Base period for all indices was March 31, 2012. The total MCAI was benchmarked at 100; the Conventional Index to 73.5 and the Government MCAI to 183.5.
The Mortgage Bankers Association (MBA) says the pace of mortgage applications slowed for a fourth consecutive time during the week ended September 2. MBA’s seasonally adjusted Market Composite Index, a measure of application volume, decreased 0.8 percent heading into the long Labor Day holiday weekend. On an unadjusted basis, the Index decreased 2 percent compared to the prior week. The Refinance Index dipped another 1 percent , putting it 83 percent lower than during the same week in 2021.The refinance share of mortgage activity increased to 30.7 percent of total applications from 30.3 percent the previous week. At this point last year, refinancing made up 66.8 percent of total application volume. [refiappschart] The Purchase Index decreased 1 percent on a seasonally adjusted basis and 3 percent before adjustment compared to the previous week. It was 23 percent lower than the same week in 2021. [purchaseappschart] “Mortgage rates moved higher over the course of last week as markets continued to re-assess the prospects for the economy and the path of monetary policy, with expectations for short-term rates to move and stay higher for longer,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “With the 30-year fixed rate rising to the highest level since mid-June, application volumes for both purchase and refinance loans dropped. Recent economic data will likely prevent any significant decline in mortgage rates in the near term , but the strong job market depicted in the August data should support housing demand. There is no sign of a rebound in purchase applications yet, but the robust job market and an increase in housing inventories should lead to an eventual increase in purchase activity .”
The volume of mortgage applications fell again last week, dragged lower by refinancing which had its largest week-over-week decline since mid-May. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that volume, decreased 3.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index fell 5 percent. The Refinance Index plunged by 8 percent and was 83 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 30.3 percent of total applications from 31.1 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index decreased 2 percent and the unadjusted version was down 4 percent from the prior week. That index was 23 percent below its level during the same week in 2021. [purchaseappschart] Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, said rate volatility is responsible for the volume declines. “Mortgage rates and Treasury yields rose last week as Federal Reserve officials indicated that short-term rates would stay higher for longer. “Mortgage rates have been volatile over the past month,” he said, “ bouncing between 5.4 percent and 5.8 percent. In another sign that market volatility has picked up, the average rate on a jumbo loan was 5.32 percent, 48 basis points lower than for a conforming loan. This spread reached a high of over 50 basis points in July – and had narrowed – before now widening again.”
Today brings the release of June's home price indices from both the FHFA (the regulator that oversees Fannie and Freddie, the entities that guarantee a majority of mortgages in the U.S.) and S&P Case Shiller. These are the two most widely followed measures of home prices and FHFA's data is particularly important as it determines changes in the conforming loan limit. Both indices decelerated in June, but both remain historically high in year-over-year terms. For those curious as to how the recent surge in prices stacks up with the housing boom that preceded the mortgage meltdown and financial crisis, here you go: Year-over-year numbers certainly don't tell the story of the recent shift in prices. The following chart shows the month-over-month changes, with the most recent update for June dropping to 0.1% (versus 1.3% in May) for FHFA and 0.4% (versus 1.2% in May) for Case Shiller. Again, this is for the month of JUNE, and there have been another 2 months of housing market activity since then. Other, more timely home price metrics suggest the trend continued, with the following comments from Black Knight being particularly interesting: "The median home price fell by 0.77% in July, the largest single-month drop since January 2011. On a seasonally adjusted basis, July’s dip ranked among the 10 largest monthly declines on record, dating back more than 30 years." -Black Knight