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At Groves Capital we deliver the absolute best lending experience through knowledge, communication, and passion for the home ownership experience.
Our mission supports the growth and strength of our communities and provides a pathway to the dream of home ownership.
Average mortgage interest rates increased significantly during the week ended September 23. As a result, the Mortgage Bankers Association (MBA) said the volume of mortgage applications gave back most of its prior week gains when it had increased for the first time in six weeks. The Market Composite Index, a measure of mortgage loan application volume, decreased 3.7 percent on a seasonally adjusted basis from one week earlier and was 4 percent lower on an unadjusted basis. The Refinance Index dropped back by 11 percent week-over-week and was 84 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 30.2 percent from 32.5 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index decreased 0.4 percent from one week earlier and was 1 percent lower before adjustment. Applications were down 29 percent compared to the same week in 2021. [purchaseappschart] “Applications for both purchase and refinances declined last week as mortgage rates continued to increase to multi-year highs following more aggressive policy measures from the Federal Reserve to bring down inflation,” Joel Kan said. “Additionally, ongoing uncertainty about the impact of the Fed’s reduction of its MBS and Treasury holdings is adding to the volatility in mortgage rates. The 30-year fixed rate was 6.52 percent, its highest level since mid-2008. After a brief pause in July, mortgage rates have increased more than a percentage point over the past six weeks .”
The monthly New Home Sales data from the Census Bureau is usually just "there"--one of several monthly housing-related reports that makes no promises about being interesting or saying anything very different from the other housing reports. Today's release of sales in August was different. It showed a staggering 28.8% increase from the previous month, bringing the total annual pace to 685k from 532k previously. Economists actually expected sales to fall to a pace of 500k. This large of a departure demands an explanation. But before that, let's get on the same page about exactly how large it was. The following chart shows the percent change from the previous month. Today's data was the 3rd biggest since records began in 1963. First off, here is what was happening with interest rates heading into August. Keep in mind that June marked a brutal spike to the highest levels in 14 years and the subsequent recovery was a lot bigger than it looks on the chart (from over 6% to under 5% for many lenders): The reemergence of upward rate pressure in the the second half of August may have also coaxed would-be buyers off the sidelines. Any contract signed in August counts in these numbers. Anecdotal reports suggest borrowers were more eager to pick a house and lock the rate by the end of the month. The other x-factor is less obvious, but just as logical. It was no mystery that builders had a growing number of homes in the pipeline due to a sales slowdown and the large pipeline of permitted/started homes waiting to be completed. It's also no mystery that June's rate spike caused a fair amount of concern in the mortgage and housing markets--this on top of more general concern from what had already been a big rate spike in 2022.
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.