November 27, 2023

By Christine Stuart , National Mortgage Professional --  October 2023 sees a 5.6% decrease in new single-family home sales compared to September, yet records a robust 17.7% compared to October 2022.

New data from the U.S. Census Bureau and the Department of Housing and Urban Development shows that new single-family home sales in October dipped, reaching a seasonally adjusted annual rate of 679,000. While this figure reflects a 5.6% decline compared to the revised September rate of 719,000, it marks a robust 17.7% increase when compared to October 2022's estimate of 577,000.

The data also revealed that the median sales price for new houses sold in October 2023 stood at $409,300, with an average sales price of $487,000. These figures indicate a range of pricing options for prospective homebuyers in the new home market.

Looking at the inventory of new houses available for sale, the seasonally adjusted estimate for October shows 439,000 homes on the market. With a current sales rate, this represents a supply of 7.8 months. 

Existing home sales also slowed in October, falling to their lowest level in more than a decade amid higher mortgage rates. Home sales in October slowed 4.1% to a seasonally adjusted annual rate of 3.79 million, the National Association of Realtors reported last week.

The pace of existing home sales was down 14.6% from the year before.

"Historically, the median sale price of a new home has been higher than that of an existing home, but that spread has steadily declined this year as the ‘rare and elusive’ existing home for sale just keeps getting more expensive. A new home provides a good alternative," First American Economist Ksenia Potapov said. 

But can builders keep up?

“Builders are benefitting from the lack of resale inventory, but to relieve the supply pressure they need to deliver homes that are completed and ready to occupy. In November, 17% of the total new-home inventory for sale was completed, down from more than 20% pre-pandemic," Potapov said.

Also when it comes to affordability, many younger generations of would-be-first-time-homebuyers are left in the cold. 

“Entry-level supply remains especially limited, even as millennials continue to age into their prime home-buying years. This month, 15% of new-home sales were priced below $300,000, up from 13% one year ago," Potapov said. “The housing market remains underbuilt relative to demand, so the lesson seems to be that if you build it – and perhaps buy down the rate – buyers will buy it."

October 31, 2023

Will Re-Accelerating House Price Appreciation Flip the Rent vs. Own Dynamic Again?

By Mark Fleming, First American Economic Insights -- In August 2023, the Real House Price Index (RHPI) jumped up by nearly 25 percent on an annual basis, dragging housing affordability to the lowest point in over three decades. Two factors drove the sharp annual decline in affordability – a 5.4 percent annual increase in nominal house prices, according to our First American Data & Analytics House Price Index, and a 1.9 percentage point increase in the 30-year, fixed mortgage rate compared with one year ago. For home buyers, holding prices constant, the only way to mitigate the loss of affordability caused by higher mortgage rates is with an equivalent, if not greater, increase in household income. Even though household income increased 2.9 percent since August 2022 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher rates and rising nominal prices.

“In today’s market, our analysis shows that it’s slightly more financially prudent to rent versus own, but the dynamic is trending toward owning once more, thanks to the benefit of equity accumulation.”

House prices reached a new peak in August. For those trying to buy a home, house price appreciation can be intimidating and makes the purchase more expensive, all else held equal. However, once the home is purchased, appreciation helps build equity in the home, and becomes a benefit rather than a cost. As potential first-time home buyers consider homeownership in today’s market, they should carefully weigh the costs of owning a home against the cost of renting.

Gap Between Cost to Own and Cost to Rent Narrows in Third Quarter

The cost of renting is simply the amount of rent paid every month. The monthly cost of owning a home includes taxes, repairs, homeowner’s insurance and the monthly mortgage principal and interest payments. To calculate the monthly cost of homeownership, our analysis assumes the potential buyer is taking out a 30-year, fixed-rate mortgage with a 5 percent down payment on a home at the median sale price. Finally, our monthly cost-to-own analysis factors in the potential benefit of equity accumulation through house price appreciation as well as the potential cost in terms of lost equity from declining house prices.

 If you simply compare the cost of renting versus the cost of owning without accounting for the benefit or loss from house price changes, it has always been cheaper to rent versus own. In fact, nationally, the gap between the cost of owning versus the cost of renting was the widest in over 20 years of data in the third quarter of 2023, due to higher mortgage rates pushing up the monthly cost of homeownership.

However, once accounting for house price changes, a different story emerges. It was more financially prudent to own versus rent from 2000 until 2005 as house price appreciation was strong. In other words, the equity gained from house price appreciation meant the house was paying homeowners during this time period. Conversely, as house prices declined from 2006 through 2011, the falling house prices added to the cost to the homeowner, and during that time it made more financial sense to rent.

This situation reversed in 2012, and house price appreciation once again began to ‘pay’ the homeowner. It wasn’t until the first quarter of this year that the market shifted back in favor of renting. As mortgage rates remained high while house prices slowed in the first and second quarters of 2023, the median monthly cost to own exceeded the cost to rent. Yet, the gap has since narrowed as house prices re-accelerated in the third quarter of the year. As of the third quarter, the median rent in the U.S. was approximately $1,300, while the median cost of homeownership adjusted for house price appreciation was approximately $1,500.

Will the Rent Versus Own Dynamic Flip Once More?

In today’s market, our analysis shows that it’s slightly more financially prudent to rent versus own, but the dynamic is trending toward owning once more thanks to the benefit of equity accumulation. It’s possible that the dynamic may shift further in favor of renting if mortgage rates move higher and house price appreciation slows. Nonetheless, this analysis demonstrates that the wealth-building effect of home equity is a powerful factor in the homeownership decision. When your home pays you, it makes more sense to buy than to rent.

Will Re-Accelerating House Price Appreciation Flip the Rent vs. Own Dynamic Again?

In August 2023, the Real House Price Index (RHPI) jumped up by nearly 25 percent on an annual basis, dragging housing affordability to the lowest point in over three decades. Two factors drove the sharp annual decline in affordability – a 5.4 percent annual increase in nominal house prices, according to our First American Data & Analytics House Price Index, and a 1.9 percentage point increase in the 30-year, fixed mortgage rate compared with one year ago. For home buyers, holding prices constant, the only way to mitigate the loss of affordability caused by higher mortgage rates is with an equivalent, if not greater, increase in household income. Even though household income increased 2.9 percent since August 2022 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher rates and rising nominal prices.

“In today’s market, our analysis shows that it’s slightly more financially prudent to rent versus own, but the dynamic is trending toward owning once more, thanks to the benefit of equity accumulation.”

House prices reached a new peak in August. For those trying to buy a home, house price appreciation can be intimidating and makes the purchase more expensive, all else held equal. However, once the home is purchased, appreciation helps build equity in the home, and becomes a benefit rather than a cost. As potential first-time home buyers consider homeownership in today’s market, they should carefully weigh the costs of owning a home against the cost of renting.

Will the Rent Versus Own Dynamic Flip Once More?

In today’s market, our analysis shows that it’s slightly more financially prudent to rent versus own, but the dynamic is trending toward owning once more thanks to the benefit of equity accumulation. It’s possible that the dynamic may shift further in favor of renting if mortgage rates move higher and house price appreciation slows. Nonetheless, this analysis demonstrates that the wealth-building effect of home equity is a powerful factor in the homeownership decision. When your home pays you, it makes more sense to buy than to rent.

August 2023 Real House Price Index Highlights

The First American Data & Analytics’ Real House Price Index (RHPI) showed that in August 2023:

• Real house prices increased 3.0 percent between July 2023 and August 2023.
• Real house prices increased 24.7 percent between August 2022 and August 2023.
• Consumer house-buying power, how much one can buy based on changes in income and mortgage rates, decreased 1.9 percent between July 2023 and August 2023, and decreased 15.5 percent year over year.
• Median household income has increased 2.9 percent since August 2022 and 85.8 percent since January 2000.
• Real house prices are 46.6 percent more expensive than in January 2000.
• Unadjusted house prices are now 55.1 percent above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 2.6 percent above their 2006 housing boom peak.

August 2023 Real House Price State Highlights

• The five states with the greatest year-over-year increase in the RHPI are: Alaska (+35.7 percent), Maine (+34.2 percent), Connecticut (+33.0 percent), West Virginia (+31.9 percent), and Indiana (+30.4 percent),
• There were no states with a year-over-year decrease in the RHPI.

August 2023 Real House Price Local Market Highlights

• Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, the five markets with the greatest year-over-year increase in the RHPI are: San Diego (+32.7 percent), Cincinnati (+32.7 percent), Hartford, Conn. (+32.1 percent), Boston (+31.2 percent), and Indianapolis (+30.2 percent).
• Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, there were no markets with a year-over-year decrease in the RHPI.

October 4, 2023

Mortgage applications slump after rates surge to 23-year high

Total mortgage applications fell 6% for the week ending Sept. 29 from the prior week as buyers wait on the sidelines: MBA

By Sarah Marx, Housing Wire – Mortgage applications ground to a halt for the week ending Sept. 29, falling 6% from the week prior as mortgage rates jumped to a 23-year high of 7.53%, according to new weekly data from the Mortgage Bankers Association.

Mortgage application activity is now at its lowest level since 1996, the MBA reported.

Purchase mortgage application volume, in particular, slowed considerably for the week ending Sept. 29, down 22% from a year ago, according to unadjusted data. Meanwhile, refinance applications slumped 7% from the previous week and were 11% lower than the same time a year ago.

“The purchase market slowed to the lowest level of activity since 1995, as the

rapid rise in rates pushed an increasing number of potential homebuyers out of the market,” Joel Kan, MBA’s vice president and deputy chief economist, said in a news release.

Bucking the downward trend, the share of adjustable-rate mortgage (ARM) applications rose to 8% of all loan applications, the MBA found. Kan attributed the uptick in ARM demand to homebuyers looking for ways to lower their mortgage payments amid rate increases.

Still, mortgage rates for home loan products across the board, including ARMs, pushed higher for the week ending Sept. 29. The average contract interest rate for 5/1 ARMs hit 6.49%, up slightly from 6.47% a week prior, the MBA reported.

Meanwhile, the refinance share of mortgage activity decreased to 31.7% of total applications from 31.9% the previous week. 

The share of Federal Housing Administration (FHA) loan activity inched up to 14.5% from 14.1% for the week ending Sept. 29. Meanwhile, the share of Department of Veterans Affairs (VA) loan activity of total mortgage applications was 10.1%, down from 10.9% the week prior. The Department of Agriculture (USDA) loan share of activity remained unchanged at 0.5%.

September 19, 2023

Changing homebuyer expectations are slowing the housing market

By Mike Simonsen, Housing Wire – Home sales each week continue to be at depressed levels. We counted only 59,000 new pending sales this week. Meanwhile, the available inventory of unsold homes is growing. This week, inventory grew faster than it did last year at this time. This is alarming because this was the moment last year when the market turned south. This week was the biggest week of inventory increase all year, with inventory growing by over 9,000 single-family homes.

Since inventory is climbing by a notable percentage, we probably have a few more weeks of inventory gains before we hit the top of the curve for the year. It’s not unusual for a little jump in new listings in September. Last year, inventory climbed dramatically for months. This year, inventory is only just starting to increase. This is a trend worth watching. 

What’s happening?

Obviously, mortgage rates have been stubbornly over 7% for a couple of months. There was a psychology change for homebuyers in the late summer. That’s a change in expectation of mortgage rates. Buyers early in 2023 had slightly lower rates than now and were optimistic that mortgage rates would go lower still. At the time, most mortgage rate forecasters were assuming the economy would slow so rates would decline. Also, they thought that the spread between the 10-year bond and the 30-year mortgage would narrow, which would mean mortgage rates would end up closer to 5.5% than to 7.5%. The conventional wisdom was that rates would head lower. 

We’re hearing people imagine 8% mortgage rates. Early in the year, people were buying at 6.5% and imagining 5.5% where they could refinance. Now, you’re looking at 7.5% and imagining 8% or higher. This “higher for longer” conventional wisdom is working its way through the housing market.

I interviewed Dr. Jessica Lautz from the National Association of Realtors for the Altos podcast and we talked about the prospect of 8% mortgage rates. I checked in with Robert Dietz of the Home Builders Association and they’ve raised their outlook on mortgage rates, as well. This change in buyer expectations is adding to the slowness right now. It’s a pretty abrupt change.

There are now 519,000 single-family homes on the market across the U.S. That’s a 1.9% increase from last week. That’s a big increase this late in the year. This reflects a notable slowdown in demand with mortgage rates well over 7% and this change in expectation of future rates. As I mentioned, the 9,000 unit increase in unsold inventory this week was the single biggest increase week all year.  This is an easy way to quantify the decreased demand that goes along with increasing unaffordability. 

Context is important. A 9,000-unit increase is the biggest week all year.

Last year, we were seeing inventory grow by 20,000 or 30,000 units per week. Nine thousand is a lot for September but it’s not a lot in the grand scheme. It shows obvious slowing demand, but is also a reflection of the fact that most of the year we had more buyers than sellers of residential real estate. Total available inventory of unsold single-family homes is still 6% less than last year. It’s more than I expected a few weeks ago, but there’s still not a lot of new supply.

The rate of sales each week is discouraging

There’s just nothing in the data that shows sales rates increasing from the very low levels we’ve seen all year. The pace of home sales this year has been both demand and supply-constrained. Right now, it’s a demand story. Most of the year, sales rates have been suppressed for lack of supply — not enough homes to buy. That condition has shifted with the cost of money in late summer. 

There were only 59,000 new pending sales of single-family homes in the U.S. this week. That pace of sales remains 10% lower than last year. I was hoping by now the easy year-on-year comparisons would show more sales in Q4 than in Q4 2022 but there’s just no sign of that happening. It’s really now looking at January before the market resets and we see what 2024 has in store for us. 

There are 345,000 single-family homes in the contract pending stage. That’s 12% fewer than last year. In this chart the height of each bar is the total count of homes in contract. The light portion of the bar are the new transactions each week. Last year, that new sales rate was plummeting each week. There were still 390,000 single-family homes under contract last year mid-September. I’ve been hoping that our pending sales would finally eclipse last fall, but it isn’t getting there. 

When we look at that new sales rate each week, you can see my disappointment. This is the chart of the new pending sales each week compared with last year at this time. The dark red line is this year. For a while in peak summer it looked like our sales rate would eclipse last year. But then rates surged over 7% and the sales rate responded immediately. Now each week we have 10-12% fewer sales than last year.

You can see in this chart the light red line in October took a big dip last year. That was both seasonal and unusual with a big late year surge in mortgage rates. The only way we end 2023 with more sales than 2022 is if mortgage rates start easing down again and that trend looks durable.

The expectations now are more common that rates aren’t falling, that 8% seems more likely than say 6.5%, and that means a ton to buyers. I always caution that we at Altos do not forecast mortgage rates, and I don’t have quantification of the home buyer sentiment either, this is just speculation on my part based on the information flow I’m starting to see from the people who do forecast mortgage rates. And fact is that we can see significantly fewer buyers in the last couple months. That’s what this chart shows us since July.

Few offers, more price reductions as inventory builds

As inventory builds, with fewer offers, so too must the price reductions climb. Sure enough there were more price cuts this week. Up to 36.6% of the homes on the market have taken a price cut recently from their original list price. See the dark red line here, that’s this year’s curve and in the last couple months the trend has reversed from improving conditions for sellers to weakening conditions for sellers. Remember that the price reductions are a leading indicator of where future sales will complete. 

There’s a lot of signals in the local markets too. The Texas markets like Austin and San Antonio and even Dallas are the ones where inventory is building and price cuts are climbing. 

Home prices still higher than last year

Home prices meanwhile are still on a different seasonal trajectory from last year. The median price of single family homes in the US is $444,900 now. Home prices are still 1% higher than last year. Those comparisons are about to get easier still. The question is whether weakening demand now brings prices lower as quickly as last fall. My suspicion is no. You can see the slope of the dark red line here. Last year home prices peaked higher than this year, and were ratcheting lower, especially in October and November.

This year the slope of seasonal price declines has been much more gentle. That implies the year over year home price gains will hold or even improve in the 4th quarter. Though I’d point out that home price gains are less important this year than the total transaction volume. The supply and demand constraints. In order for the market to feel more healthy, we need more transactions. The fact that home prices are up year over year just helps us see that there is no 2008 apocalypse happening. 

The price of the newly listed properties this week popped up a bit. That’s not unusual for mid-September. So I wouldn’t read too much into it. The price of the new listings is more volatile each week. At $399,900 that’s higher than last year at this time, but can bounce down next week. It’s not plummeting, so again, if you have a hypothesis that the housing market must be crashing, if you assume that home prices are crashing, using the leading indicators like the price of the new listings is helpful to confirm or reject that hypothesis. 

Mike Simonsen is president and founder of Altos Research.

August 28, 2023

Redfin: Housing Market Remains a Dizzying Rollercoaster Ride

By Nina Korman, MortgageOrb – According to a new report from Redfin, July pending home sales rose 0.7% from a month earlier to the highest level since the start of the year on a seasonally adjusted basis, but were still only 5.4% above the low point hit in March. Pending sales fell 15.7% year over year, the smallest annual decline since last summer.

Pending sales have stabilized as the shock of elevated mortgage rates has subsided. They dropped to 367,000 in March – the lowest since the onset of the pandemic – and have been hovering around that level ever since (they clocked in at 387,000 in July) as prospective buyers continue to be discouraged by high housing costs and a lack of homes for sale.

“Fading recession fears and the prospect of further home price increases have brought some house hunters off the sidelines, but for the most part, buyers remain hesitant to jump into the market because their buying power is so much lower than it was a year ago,” says Daryl Fairweather, Redfin chief economist.

The average 30-year-fixed mortgage rate was 6.84% in July, up from 6.71% a month earlier and 5.41% a year earlier – and it has climbed even higher since. As of Thursday, it was 7.23% – the highest since 2001. That, along with stubbornly high home prices, has sent the typical homebuyer’s monthly mortgage payment up substantially from a year ago.

The median home sale price rose 1.7% year over year to $421,872 in July – the first annual increase since the start of the year. That’s just 2.5% below the record high of $432,476 set in May 2022.

Housing prices have remained high despite sluggish homebuyer demand because there are so few homes on the market, meaning the buyers who are out there are frequently competing for a small pool of properties.

The total number of homes for sale (active listings) fell 3.9% month over month in July to the lowest level on record on a seasonally adjusted basis, and dropped 19.5% from a year earlier. That’s the biggest annual decline in more than two years.

Housing supply is dwindling because high mortgage rates are dissuading homeowners from selling. New listings in July were little changed from a month earlier, rising 0.5% on a seasonally adjusted basis, but they were down 22.2% from a year earlier.

Metro-Level Highlights for July 2023:

Pending sales: In Bridgeport, Conn., pending sales fell 55.1% year over year, more than any other metro Redfin analyzed. The smallest declines were in Detroit (-1.2%) and El Paso, Texas (-1.2%).

Closed sales: In New Haven, Conn., closed home sales dropped 30.5% year over year, more than any other metro Redfin analyzed. Closed sales rose in just one metro: North Port, Fla. (4.3%).

Prices: The biggest declines were in Austin, Texas (-10.5%), Detroit (-7%) and Honolulu (-6.2%). The biggest increases were in Dayton, Ohio (12.2%), Miami (11.7%) and Camden, N.J. (9.7%).

Listings: New listings fell most from a year earlier in Bridgeport, Conn. (-51.4%). They rose in one metro – McAllen, Texas (2.5%).

Supply: Active listings fell most from a year earlier in Bridgeport, Conn. (-49.8%). They rose most in New Orleans (33.4%).

August 17, 2023

Here’s why the home insurance market matters

By HW Media Content Studio, HousingWire –  HousingWire recently spoke with Matic CEO and co-founder Ben Madick about the changing home insurance market, how it impacts mortgage lenders and homeowners, and why lenders should pay attention.

HousingWire:  What is the current home insurance market like?

Ben Madick: The home insurance market is experiencing unprecedented volatility, which has significant implications for homeowners, mortgage lenders and prospective homebuyers.

Two key trends have emerged in this landscape. Firstly, it’s more challenging to acquire insurance as home insurance carriers are imposing restrictions on new business and rapidly exiting specific markets. Secondly, the cost of home insurance is more expensive than ever as premiums are increasing at drastically high rates.

These trends stem from the challenges carriers have faced in recent years, including the surge in weather events and the rising cost of building materials. In 2022, property and casualty insurers recorded a combined ratio of 102.4% as reported by S&P Global Market Intelligence, indicating a lack of profitability.

To mitigate these losses, carriers are raising premiums for both renewal business and new business. Approval from state regulators, typically known as the Department of Insurance (DOI), is necessary for implementing rate increases. However, in certain regions such as California and New York, the DOI has been slow in approving proposed rate hikes. Carriers in California, for instance, have reported applying for home insurance rate increases as far back as six years ago, still awaiting approval. Other states impose a cap on home insurance premium increases, making it challenging for insurers to keep up with inflation.

When faced with premium delays and denials, carriers have to make a choice: either continue writing new business despite the unsustainable loss ratios or discontinue offering insurance in those specific areas. In the past year, an escalating number of national carriers have enforced limitations on new home insurance business universally. Furthermore, carriers have taken more extreme measures by completely discontinuing the underwriting of new policies in specific states. This trend, which had been a longstanding challenge in Florida, is now beginning to impact other states like California, Georgia, South Carolina, New Jersey, New York and Arizona.

In regions where rate increases are approved, carriers may continue selling new business and pass along significantly higher rates to new policyholders. For example, according to the Texas Department of Insurance, 87% of property and casualty rate change requests were approved in 2022. Consequently, home insurance premiums in Texas increased an average of 16% this year compared to 2022, bringing the average annual cost to $2,150. Back in 2020, insurance premiums averaged $1,637 in Texas.

Overall in the U.S., premiums have risen to a record high average of 9% during the first half of 2023, compared to the previous year. Rates began climbing between 5-6% in 2021 and 2022. Prior to 2021, premium increases for new business averaged between 2-4%. Additionally, for homeowners that stay with the same carrier and policy, renewal rates have experienced an even steeper incline. Across the U.S., home insurance premium renewals increased an average of 23% in the first half of 2023.

HW: Why should mortgage companies pay attention to what’s going on in home insurance?

BM: Lenders need to be aware of the insurance landscape as it can have a significant impact on their ability to efficiently close a loan due to availability and pricing. With home insurance demand surpassing supply, homebuyers are experiencing longer search times while they try to find a carrier that will accept their business. In addition to the usual research period, there are new considerations such as customer service wait times. Less than 10 home insurance carriers offer the ability to bind a home insurance policy 100% online without working with an agent in some capacity, making wait times an important factor.

For instance, when State Farm announced they were exiting California, one regional carrier in the state experienced an overwhelming 500% increase in inbound calls, causing significant delays in average wait times for existing and potential customers. These delays add complexities to the timing of when proof of insurance is required, potentially prolonging the closing process by a few days or even weeks, leading to increased costs for mortgage lenders. Rate-lock extensions alone can result in lenders losing tens of thousands of dollars per month.

In the worst-case scenario, the rising cost of insurance could lead to a mortgage being denied during the underwriting process. Accurately calculating a customer’s front-end debt-to-income ratio (DTI) requires accounting for all housing expenses, including homeowners insurance premium. It is not uncommon for loan officers to walk away from a loan or two each month when the borrower’s DTI exceeds acceptable limits once the insurance estimate is factored in.

HW: Why is working with an insurance marketplace important in this changing market?

BM: In a landscape where carriers are increasingly restricting new home insurance business, partnering with a digital insurance marketplace backed by a strong carrier network becomes essential for both borrowers and lenders.

A marketplace offers numerous benefits, such as time savings for borrowers during the research process, as multiple carriers are digitally integrated into the online shopping experience. This enables borrowers to swiftly determine the availability of options and evaluate the affordability of policies, leading to potential long-term savings and reduced DTI. Moreover, a marketplace increases the chances of borrowers finding suitable policies, particularly in areas where supply is limited.

HW: How does working with Matic help lenders improve the customer experience?

BM: We built Matic’s embedded insurance marketplace specifically for the mortgage industry to provide value to lenders, servicers and borrowers. With Matic, borrowers save time by shopping multiple carriers at once and are automatically presented with transparent pricing and coverage options. Depending on the policy, the borrower can finalize the purchase online, or they can work directly with a licensed advisor. On average, customers save over $500 a year when they purchase a policy through Matic.

Since Matic is integrated into the mortgage process, finding homeowners insurance is no longer an afterthought, which adds visibility and control for the lender, allowing them to foresee potential issues that could result in delayed closings. Additionally, it can create a passive revenue stream for mortgage companies, helping to offset down cycles.

In the early days, we invested a lot of time creating the right mix of carriers covering all 50 states so that we would be able to sustain availability limitations and rate fluctuations. Today, Matic has 45 A-rated carriers, and it continues to grow to account for the rapidly changing market.

Bottom line, Matic’s flexible insurance marketplace is essential for mortgage companies and borrowers, especially during times of unprecedented market volatility.

July 26, 2023

Mortgage demand drops as interest rates remain stubbornly high

By Diana Olick, CNBC.com

KEY POINTS

• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) remained unchanged at 6.87%
• Applications for a mortgage to purchase a home dropped 3% for the week and were 23% lower than the same week one year ago

Mortgage rates didn’t move at all last week, and are still sitting near a recent high. With home prices continuing to rise, that pushed more potential homebuyers to the sidelines.

Total mortgage application volume dropped 1.8% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) remained unchanged at 6.87%, with points decreasing to 0.65 from 0.66 (including the origination fee) for loans with a 20% down payment. That rate crossed over 7% a few weeks ago and has yet to retreat much.

As a result, applications for a mortgage to purchase a home dropped 3% for the week and were 23% lower than the same week one year ago, when rates were in the mid 5% range. The decline in purchase activity was driven partly by a 10% drop in FHA applications. The Federal Housing Administration, which offers low down payment loans, is favored by lower-income buyers. Clearly, the market is becoming less and less affordable for them.

“The decrease in FHA purchase applications contributed to an increase in the overall average purchase loan size to $432,700, its highest level since the end of this May,” said Joel Kan, an MBA economist, indicating that more activity is now on the higher end of the market.

Applications to refinance a home loan were essentially flat for the week and 30% lower than the same week one year ago. Most borrowers today carry interest rates far lower than the current rate and would therefore not benefit from a refinance. Those wishing to take cash out of their homes are choosing second, home equity loans rather than lose the rate on their primary loan.

Mortgage rates moved higher to start this week, crossing over 7% Tuesday to 7.04%, according to Mortgage News Daily. Rates will likely move later today, following the latest interest rate decision and press conference at the Federal Reserve. The Fed is widely expected to increase its benchmark interest rate by 0.25%.

“The Fed Funds Rate doesn’t directly dictate mortgage rates. In other words, mortgage rates CAN move lower tomorrow even if the Fed hikes. They can also move higher depending on what [Fed chief Jerome] Powell has to say about the Fed’s policy stance,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.