Mortgage Rates Inch Up While Mortgage Credit Availability Inches Down

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On The Mortgage Front

Freddie Mac (OTCMKTS:FMCC) reported the 30-year fixed-rate mortgage averaged 6.12% as of Feb. 9, up from last week when it averaged 6.09%; a year ago at this time, it averaged 3.69%. The 15-year fixed-rate mortgage averaged 5.25%, up from last week when it averaged 5.14%; a year ago at this time, it averaged 2.93%.

“Following an interest rate hike from the Federal Reserve and a surprisingly strong jobs report, mortgage rates increased slightly this week,” said Sam Khater, Freddie Mac’s chief economist. “The 30-year fixed-rate continues to hover close to 6% and interested homebuyers are easing their way back to the market just in time for the spring homebuying season.”

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The Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of mortgage loan application volume, increased 7.4% on a seasonally adjusted basis for the week ending Feb. 3. from one week earlier. On an unadjusted basis, the Index increased 8% compared with the previous week.

The seasonally adjusted Purchase Index increased 3% from one week earlier while the unadjusted index was up 4% -- although it was also 37% lower than the same week one year ago. The Refinance Index increased 18% from the previous week but was 75% lower than the same week one year ago.

“Both purchase and refinance applications increased last week and have shown gains in three of the past four weeks because of lower rates,” said MBA’s Vice President and Deputy Chief Economist Joel Kan.

“Overall applications remained 58% lower than a year ago and rates are still significantly higher, however, this week’s results are a step in the right direction. Purchase activity that was put on hold last year due to the quick runup in rates is gradually coming back as rates ease and housing demand remains strong, driven by supportive demographics and the ongoing strength in the job market.”

The MBA also reported that mortgage credit availability decreased in January according to its Mortgage Credit Availability Index (MCAI), which fell by 0.1% to 103.2 in January; the index was benchmarked to 100 in March 2012.

The Conventional MCAI decreased 0.3% while the Government MCAI remained unchanged. Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 0.4%, and the Conforming MCAI remained unchanged.

“Mortgage credit availability was essentially unchanged in January and remained close to its lowest level since 2013,” said Kan.

“However, there has been a revival in mortgage application activity over the past month and our forecast is for rates to continue to decline and housing activity – including home sales and new home construction – to gradually pick up as we approach the spring homebuying season. These developments could potentially change the credit availability landscape in the months ahead.”

Separately, new data from LendingTree (NASDAQ:TREE) determined that an average of 52.88% of mortgage offers went to millennials in 37 of the nation’s 50 largest metros.

Millennials make up the largest share of potential homebuyers in San Jose (63.57%), Denver (61.35%) and Boston (60.59%). Millennials in Las Vegas, Birmingham, Alabama, and Phoenix make up the lowest share of potential buyers — an average of 44.66% of mortgages in those metro areas.

“Even if millennials aren’t usually as financially well off as older generations are, that’s not stopping many of them from jumping into the housing market,” said LendingTree's Senior Economist Jacob Channel.

“In fact, though it may be surprising given how often we hear about the financial struggles that millennials face, members of the generation make up the largest group of homebuyers in each of the nation’s largest metros. As they continue to age, get married and start families, the homeownership rate among millennials will likely rise even further.”

On The Homeownership Front

Approximately nine out of 10 metro markets registered home price gains in the fourth quarter of 2022, according to the National Association of Realtors (NAR). However, only 18% of the 186 tracked metro areas registered double-digit price increases, down from 46% in the third quarter of 2022.

The national median single-family existing-home price rose 4% year-over-year to $378,700; in the third quarter, the year-over-year price appreciation was 8.6%. Half of the top 10 most expensive markets were in California.

“A slowdown in home prices is underway and welcomed, particularly as the typical home price has risen 42% in the past three years,” NAR Chief Economist Lawrence Yun said, noting these costs increases have far surpassed wage increases and consumer price inflation of 15% and 14%, respectively, since 2019. “Far fewer metro markets experienced double-digit price gains in the latest quarter.”

According to the Housing Opportunity Index published by the National Association of Home Builders (NAHB) and Wells Fargo (NYSE:WFC), only 38.1% of new and existing homes sold between the beginning of October and end of December were affordable to families earning the U.S. median income of $90,000.

This marks the third straight quarterly record low for housing affordability since the Great Recession, trailing the previous mark of 42.2% in the third quarter and 42.8% set in the second quarter.

“Rising mortgage rates, supply chain disruptions, elevated construction costs and a lack of skilled workers and lots all contributed to a declining housing market and worsening affordability conditions going back to the second quarter of last year,” said NAHB Chairman Alicia Huey, a custom home builder from Birmingham, Alabama.

“But we are anticipating a better affordability climate in the months ahead, with mortgage rates already posting a modest drop since the beginning of the year and expectations that the Federal Reserve will end its latest string of interest rate hikes by the end of the first quarter.”

Separately, new data from ATTOM found there were a total of 31,557 U.S. properties with foreclosure filings in January, up 2% from December and up 36% from one year ago. Lenders repossessed 3,896 properties through completed foreclosures (REOs) in January, up 6% from the previous month but down 19% from last year – the first annual decrease in completed foreclosures since June 2021.

“The uptick in overall foreclosure filings nationwide points toward a trend that may suggest more increased activity is on the horizon as we enter the new year,” said ATTOM CEO Rob Barber.” While both completed foreclosures and foreclosure starts have stalled slightly over the past month, the annual increase in overall activity seen over the past 21 months may indicate a more substantial trend that could continue into 2023.”