EconodaySynopsis
- Purchase applications for home mortgages fell a seasonally adjusted 2 percent in the August 3 week, posting the fourth weekly decline in a row, while applications for refinancing fell 5 percent to their lowest level since December 2000. Unadjusted, purchase applications were 2 percent below the level a year ago.
- The refinance share of mortgage activity decreased by 0.5 percentage points to 36.6 percent.
- Mortgage rates were steady, with the average interest rate for 30-year fixed rate conforming mortgages ($453,100 or less) remaining unchanged from the prior week at 4.84 percent. Higher interest rates are taking their toll on mortgage activity and the 2 percent year-on-year decline in purchase applications does not bode well for a housing market already showing little life.
The MBA mortgage application index is weekly, thus it’s a bit noisy. Nonetheless, it’s pretty clear what’s happening: Home prices are unaffordable and the Fed is hiking. Refinancing makes no sense.
Mike “Mish” Shedlock
Near my home, new houses are taking a long time to sell. You have to pay a 50% or so premium to buy new vs buying an older home. There’s one new development that still has inventory to sell and they stopped building over a year ago.
Virtually all of the home builder stocks are down YTD. Sales volume is stagnating. Prices are at record highs, and real wage growth is turning negative. Not exactly a recipe for growth in the housing sector.
It’s still very much a bifurcated market, precisely because of the policies following the last housing bust. Trickle-down monetary policy and trickle-down fiscal policy are eating away at overall demand as what is left of a dwindling middle class gets buried alive. But look on the bright side. At least we saved the U.S. banking sector…a shining monument to fraud and malfeasance.
“This setup feels different. People are priced out.”
Yeah, may be it is because of this…
In 2006, people (who could be priced in) were priced in – creates a vacuum in demand
In 2018, people (who could afford to buy) have bought and others are priced out – creates a vacuum in demand
Either way it is the vacuum in demand that sets the stage for a crash.
I think you need a vacuum in demand plus sellers who NEED to sell in order to have a crash. A vacuum in demand in a world of fixed rate mortgages and reasonable lending standards sounds more unpleasant than scary.
If I was looking for reasons to be scared, I’d look at the Unison co-buyer model. They appear to be using an unregulated model to increase buying power. If they have the ability to erase equity and force sales during market declines, that would be justification for being scared.
Last time it was zero down, horrible credit, no income documentation loans that blew up the market. This time its 5,000 year low interest rates and foreign Chinese investors in coastal areas that have inflated things. But there isn’t as much of a marginal no money down shitty credit buyer in the market this time. Less speculative building this time. Better lending standards for sure this go around. But prices on the coasts and select inland areas seem inflated.
We had a crash last time because of speculation, facilitated by lenders, and the sentiment that the whole country could never crash simultaneously.
This setup feels different. People are priced out. If lenders were being crazy again, nobody would be priced out.
This time isn’t at all different from around 2008. It is even worse than 2008 as more speculation occurred this time around.
“This setup feels different. People are priced out.”
Yeah, may be it is because of this…
In 2006, people (who could be priced in) were priced in – creates a vacuum in demand
In 2018, people (who could afford to buy) have bought and others are priced out – creates a vacuum in demand
Either way it is the vacuum in demand that sets the stage for a crash.
As opposed to the crash of 2007-08, it is more likely to be “death by a thousand cuts” this time around.