Housing Beat For Aug. 25: Mortgage Rates Rise As Home Sales Plummet

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The housing market continued to decelerate amid rising mortgage rates and declining home sales. And the situation wasn’t much better for those in rental housing, with housing costs hitting another record high.

On The Mortgage Front

Freddie Mac (OTCMKTS:FMCC) reported the 30-year fixed-rate mortgage averaged 5.55% as of Aug. 25, up from last week when it averaged 5.13%.

The 15-year fixed-rate mortgage averaged 4.85%, up from last week when it averaged 4.55%. And the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.36%, down from last week when it averaged 4.39%.

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“The combination of higher mortgage rates and the slowdown in economic growth is weighing on the housing market,” said Sam Khater, Freddie Mac’s chief economist.

“Home sales continue to decline, prices are moderating, and consumer confidence is low. But, amid waning demand, there are still potential homebuyers on the sidelines waiting to jump back into the market.”

While mortgage rates were on the upswing, mortgage application activity plummeted for the third straight week, remaining at their lowest level in 22 years.

The Mortgage Bankers Association’s (MBA) Market Composite Index fell by 1.2% on a seasonally adjusted basis and decreased by 3% for the week ending Aug. 19 from the previous week.

The unadjusted Refinance Index was down by 3% percent from the previous week and was 83% lower than the same week one year ago.

“Mortgage applications continued to remain at a 22-year low, held down by significantly reduced refinancing demand and weak home purchase activity,” said Joel Kan, MBA associate vice president of economic and industry forecasting.

“Last week’s purchase results varied, with conventional applications declining 2% and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity.

The average purchase loan size continued to trend lower, as purchase activity at the high end of the market is weakening.”

Separately, a new report from real estate data resource ATTOM determined 2.39 million mortgages secured by residential property were originated in the second quarter of this year.

This is down by 13% from the first quarter –the fifth quarterly decrease in a row – and down 40% from the second quarter of 2021 – the largest year-over-year decline since 2014.

Overall, lenders issued $807.8 billion worth of mortgages in the second quarter, down 11% from the first quarter and down by 35% from one year earlier.

The annual decrease in the dollar volume of loans was the greatest in eight years.

The mortgage industry lost another lender this week as the San Mateo, California-based real estate fintech platform Reali announced it was shutting down after six years in business and would begin laying off most of its workforce on Sept. 9.

In a press release, the company blamed its demise on “challenging real estate and financial market conditions and unfavorable capital-raising environment,” adding that its active real estate transactions “will continue to be supported through the end of the year by a small team of employees.”

On The Homebuying Front

Two new reports have reaffirmed a significant cooling in property purchases.

Pending home sales were down in July, according to data from the National Association of Realtors (NAR). This marked the second consecutive month and the eighth time in the last nine months that pending sales were down.

NAR’s Pending Home Sales Index dropped by 1% to 89.8 in July while year-over-year pending transactions slid by 19.9%. An index of 100 is equal to the level of contract activity in 2001.

“In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” said NAR Chief Economist Lawrence Yun.

“This month’s very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity.”

NAR also noted that housing affordability plummeted to its lowest level since 1989 – with a 30-year fixed-rate mortgage and a 20% down payment, NAR estimated that the monthly mortgage payment on a typical home jumped to $1,944, an increase of 54%, or $679, from one year ago.

Home prices are still rising by double-digit percentages year-over-year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023,” Yun added.

“With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year.”

The Seattle-based brokerage Redfin (NASDAQ:RDFN) reported a 19.3% year-over-year decline in home sales during July to their lowest level since the beginning of the pandemic – the biggest annual decline in more than a year.

Home sales dipped 4.1% from the previous month, the sixth-straight monthly decline, and home prices increased at their slowest pace since June 2020, inching up by 7.7%.

On The Rental Housing Front

The U.S. median rental price in July was $1,879, according to data from Realtor.com. This marks the 17th consecutive month when the median rental price hit a new record high.

Overall rents posted double-digit gains from one year earlier all unit sizes in July: Studios (+14.3% to $1,555), one-bedrooms (+12.2% to $1,745) and two-bedrooms (+11.7% to $2,103).

Among the 50 largest metros in July, Miami recorded the greatest rental price spike for the 10th straight month (+26.2%).

“Whether in a downtown area or suburb, staying put or making a change, renters are stuck between a rock and a hard place when it comes to affordability,” said Realtor.com Chief Economist Danielle Hale.

“Compared to three years ago when rental price premiums were typically concentrated in urban hubs, renting is now nearly as expensive in the suburbs, where the rise in remote work has driven a surge in demand.”

Hale added that some relief might be in sight, with data suggesting that “landlords are adjusting their approaches to renters' tightening budgets, while July data shows rent growth is leveling off at a relatively cooler pace than in 2021.”

Realtor.com is operated by the News Corp (NASDAQ:NWS) (NASDAQ:NWSA) subsidiary Move, Inc.