Mortgage Rates Inch Up, Mortgage Applications And Existing Home Sales Decline

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This week, the housing market saw a continued climb in mortgage rates while existing home sales continued falling.

On The Mortgage Front

Freddie Mac (OTCMKTS:FMCC) reported the 30-year fixed-rate mortgage averaged 6.94% as of Oct. 20, up from last week when it averaged 6.92%. The 15-year fixed-rate mortgage averaged 6.23%, up from last week when it averaged 6.09%.

And the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.71%, down from last week when it averaged 5.81%.

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“Mortgage rates slowed their upward trajectory this week,” said Sam Khater, Freddie Mac’s chief economist. “The 30-year fixed-rate mortgage continues to remain just shy of seven percent and is adversely impacting the housing market in the form of declining demand.

Additionally, homebuilder confidence has dropped to half what it was just six months ago and construction, particularly single-family residential construction, continues to slow down.”

While mortgage rates inched up, mortgage applications dropped again to their lowest level in 25 years. The Mortgage Bankers Association (MBA) reported its Market Composite Index was down by 4.5% from one week earlier, with its Purchase Index falling 4% and its Refinance Index taking a 7% dive.

“The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market,” said Joel Kan, MBA vice president and deputy chief economist.

“Residential housing activity ranging from new housing starts to home sales have been on downward trends coinciding with the rise in rates. The current 30-year fixed rate is now well over three percentage points higher than a year ago, and both purchase and refinance applications were down 38% and 86% over the year, respectively.”

On The Homebuying Front

Existing home sales were down by 1.5% from August to September, according to new data from the National Association of Realtors (NAR). Last month’s 4.71 million transactions were also 23.8% lower than the 6.18 million recorded in September 2021.

“The housing sector continues to undergo an adjustment due to the continuous rise in interest rates, which eclipsed 6% for 30-year fixed mortgages in September and are now approaching 7%,” said NAR Chief Economist Lawrence Yun. “Expensive regions of the country are especially feeling the pinch and seeing larger declines in sales.”

While September was the eighth consecutive month of declines for existing home sales, it was also the 127th consecutive month of year-over-year increases in the median existing home price – last month, that price was $384,800, an 8.4% jump from $355,100 in September 2021.

“Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory,” Yun said. “The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.”

But sellers are not getting the same bang for their buck as they did one year ago. ATTOM reported that profit margins on median-priced single-family home and condo sales in the third quarter decreased to 54.6% as home prices declined for the first time in almost three years; during the second quarter, the typical profit margin was 57.6%.

“Rapidly-rising mortgage rates have not only resulted in fewer home sales, but have begun to impact home prices as well,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “With rates the highest they’ve been in over 20 years, homebuyers face serious affordability challenges, with monthly payments in some markets up 50 percent year-over-year.

In a separate data report, RE/MAX (NYSE:RMAX) reported home sales in September were down by 9.7% from August across the nation’s 53 major metro areas, according to new data from RE/MAX, while September’s median sales price of $400,000 was 6.1% lower than the year-high of $426,100 set in June.

The September median sales price dipped by 1.2% from August but was 6.7% above the level set in September 2021. The average close-to-list price ratio in September was 99%, which means homes sold for 1% less than the asking price for the second consecutive month after being at 100% or above through the first seven months of 2022.

Inventory in September saw a 3.9% uptick from August and was up 30.4% year-over-year, but new Listings were down 7.6% month-over-month and down 11.4% year-over-year.

“After a sustained period of quick sales that kept the housing cupboard relatively bare, a supply of two months presents a lot more options for homebuyers,” said Nick Bailey, RE/MAX president and CEO.

“For a long time, six months of inventory was the standard for a balanced market that favored buyers and sellers evenly. Now, with the evolution of technology and various changes in homebuying patterns, the new standard is becoming four months.”

It’s very likely that home prices will continue to weaken in many markets in the coming

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