May 22, 2024

Are Hopes of Lower Mortgage Rates Freezing Up the Market Further? Buyers’ Strike Continues

Mortgage rates dropped a lot, but not nearly enough to hit the magic level that thaws out the housing market. Now they rose again.

By Wolf Richter for WOLF STREET.

Hype in the media about real estate going to the moon or whatever is a never-ending drama. For example, on CNBC this morning, we read this headline: “Mortgage demand jumps nearly 10% to start the year, even as interest rates tick up again.” Which was a joke?

This was in response to data by the Mortgage Bankers Association today that mortgage applications to purchase a home during the week ended January 5th had risen by 6% from the prior week, seasonally adjusted. But in that prior week, applications had plunged from the week before the holidays, and so today’s reading didn’t even go back to where it had been two readings ago, and was down from the same week in:

  • 2023: -16%
  • 2022: -48%
  • 2021: -56%
  • 2019: -42%

That tiny uptick today barely registers in the three-year 50%-plus plunge of mortgage applications to purchase a home, which in late 2023 had hit the lowest levels in the data going back to 1995 as the housing market has frozen up:

Even in the close-up of the three-year decline, that tiny uptick today is hard to see amid much bigger ups and downs, and the total remains near the historic lows of last November:

Refis are still in the deep-freeze. Mortgage applications to refinance an existing mortgage jumped a bunch from near-zero in the prior week but remained embarrassingly close to near-zero. Compared to the same week in 2022, refi applications were down by 81%; and compared to the same week in 2021, they were down by 91%:

The entire mortgage industry got waylaid by the 80% to 90% collapse of the demand to refinance mortgages, and thousands of mortgage bankers got laid off over the past two years. Refis had been a big part of the business, and it collapsed when mortgage rates started rising.

Makes sense: Who’d want to refinance a 3% mortgage with a 6.7% mortgage, unless you desperately have to pull a bunch of cash out of your inflated home-equity, hoping to sell the home in the near future, or to refinance it again after mortgage rates drop back to 3% or something?

Mortgage rates have dropped a lot, but not nearly enough to hit that magic level that would thaw out the housing market. And now they ticked up again.

In the latest week, the average conforming 30-year fixed mortgage rate rose to 6.81%, up from 6.76% in the prior week, and up by 40 basis points from a year ago, according to data from the Mortgage Bankers Association today.

Is the hope of lower mortgage rates freezing the market further?

There was a frenzied rush into housing, a total no-questions-asked mania in 2021 and early 2022 as mortgage rates began to rise, inflation was kicking off, and higher Fed policy rates started cropping up on the horizon. Everyone and their dog wanted to get out there and “lock in” the low mortgage rates while they still could, even at 4%, and those buyers, largely Millennials and GenZers, trampled all over each other and elbowed each other out of the way, and outbid each other, and thereby bid up prices in a historic manner.

And in addition to locking in lower mortgage rates until they have to move for a job or whatever, the winners of these bidding wars also locked in those high prices. That frenzy was caused in part by the fear of missing out (FOMO) on the lower mortgage rates.

Now the opposite is here. People are seeing lower mortgage rates on the horizon, and they decided to wait a little while to let rates come down further, to maybe 5% or better 4% with 3% dangling out there as the big carrot, and rates may not come down further, they already came down a bunch, and then people wait a little longer and start praying for lower mortgage rates?

In reality, home prices are way too high for these kinds of mortgage rates – they’re way too high, period – and so the market is frozen: sellers don’t want to sell at prices that they could sell the home for; and buyers refuse to pay those prices. And so sales of existing homes have plunged, it’s not getting better in any significant way, as we can see in the mortgage applications, as we can see in closed sales of existing homes, and in pending sales of existing homes – now in part driven by the hopes of lower mortgage rates.

And the national median price, per the national Association of Realtors, after hitting its highest level in June 2022, failed to take out that high in June 2023 – a first since the Housing Bust – and is now looking not so hot anymore:

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