Mortgage Demand for New Homes Surged 26.1% in June

In June, new home purchase mortgage applications surged by 26.1% compared to last year, as reported by the Mortgage Bankers Association (MBA) builder application survey. However, there was a 5% drop in applications compared to the prior month. MBA estimated that approximately 687,000 new single-family homes were sold in June at a seasonally adjusted annual rate, which is a 9% decline from May’s pace of 755,000 units.

Joel Kan, MBA’s vice president, and deputy chief economist, highlighted that new home purchase activity continues to be positive, showing annual increases for five consecutive months. Rising mortgage rates in June, averaging close to 6.8% for the 30-year fixed rate, may have caused some pullback in monthly purchases. Nevertheless, prospective buyers are turning to newly built homes due to months of high mortgage rates and low existing inventory.

Homebuilders constructed an annualized rate of 1.434 million houses in June, down 8% from May and 8.1% from June 2022, according to the U.S. Census Bureau. Single-family home construction experienced a 7% month-over-month decrease to a rate of 935,000 in June. The average loan size decreased from $403,581 in May to $400,281 in June, with conventional loans accounting for 65.5% of loan applications. FHA loans comprised 24.1%, V.A. loans accounted for 10% of total applications, and RHS and USDA loans made up 0.3%.

S&P Case-Shiller: Home Prices Keep Climbing, Striking Regional Differences

The S&P CoreLogic Case-Shiller home price index showed rising home prices in May for the fourth consecutive month, with a seasonally adjusted national gain of 0.7%. Prices are just 1% below their peak in June 2022 and down 0.5% from May 2022. While the 20-city composite increased by 1% in May, the 10-city composite was up 1.1%, highlighting regional variations in price patterns.

With price increases of 4.6%, 3.9%, and 3.5%, respectively, the Rust Belt’s major cities, including Chicago, Cleveland, and New York, outpaced the rest of the country. However, Western cities like Seattle and San Francisco, which had 11.3% and 11% reductions, respectively, had the worst performances. The housing market’s recovery is attributed to an ongoing shortage of homes for sale since present homeowners are reluctant to sell given the low interest rates on their mortgages and because demand has remained high despite an early increase in mortgage rates. The general housing market, however, still has difficulties with affordability, and the scarcity of existing homes has boosted competition in many cities.

Mortgage Demand Drops Amid High Interest Rates

Mortgage rates remained at near-high levels, causing potential homebuyers to hold back. Last week, total mortgage application volume declined by 1.8% compared to the previous week, as the Mortgage Bankers Association reported. Applications for home purchases dropped by 3%, and they were 23% lower than the same week last year, when rates were in the mid-5% range. The decline in purchase activity was partly due to a 10% drop in FHA applications, which lower-income buyers favor. The market is becoming less affordable for them, resulting in an increase in the average purchase loan size to $432,700.

Refinance applications were essentially flat for the week, with a 30% decrease compared to last year. Most borrowers already have lower interest rates than the current rate, making refinancing less attractive. Mortgage rates rose to 7.04% this week, and the Federal Reserve is expected to increase its benchmark interest rate by 0.25%. However, the Fed’s decision doesn’t directly dictate mortgage rates, and they may move lower or higher depending on Fed chief Jerome Powell’s statements about the Fed’s policy stance.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.