Housing Beat: Home Sales Drop, Homeowners Insurance Spikes, Builder Confidence Tanks

Zinger Key Points
  • Homeowners' insurance has increased by as much as 34% in some states since 2021.
  • Builder confidence is at its lowest level since June 2020.

The U.S. housing market showed unmistakable signs of stalling this week. Despite a decline in mortgage rates, mortgage applications and home sales were down while the cost of homeowners insurance was rising across most of the nation.

On The Mortgage Front: Freddie Mac FMCC reported the 30-year fixed-rate mortgage averaged 5.1% as of May 26, down from last week when it averaged 5.25%. The 15-year fixed-rate mortgage averaged 4.31% with an average 0.8 point, down from last week when it averaged 4.43%. And the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.2%, up from last week when it averaged 4.08%.

“Mortgage rates decreased for the second week in a row due to multiple headwinds that the economy is facing,” said Sam Khater, Freddie Mac’s chief economist. “Despite the recent moderation in rates, the housing market has clearly slowed, and the deceleration is spreading to other segments of the economy, such as consumer spending on durable goods.”

The Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of mortgage loan application volume, was down 1.2% from one week earlier. The MBA’s Purchase Index managed a tiny 0.2% uptick, while its Refinance Index dropped 4% — the latter was also 75% lower than the same week one year ago.

“Most refinance borrowers continue to remain on the sidelines as a result, and refinance applications have fallen in nine of the past 10 weeks — compared to January 2022, refinance activity is down 66%,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“Higher mortgage rates are also impacting purchase market conditions, as the purchase index remained close to lows last seen in the spring of 2020 when a significant portion of activity was put on hold due to the onset of the pandemic. Currently, higher rates, low inventory and high prices are keeping prospective buyers out of the market.”

The MBA also determined that higher mortgage rates (an 80-basis-point spike during April) coupled with accelerating home prices resulted in the median mortgage application payment jumping 8.8% from $1,736 in March to $1,889 in April. The sum covers both principal and interest. The median application payment was also $569 higher than in April 2021.

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On The Insurance Front: But mortgages aren’t the only home-related paperwork that have become weighed down with increased costs. The online insurance marketplace QuoteWizard, a division of LendingTree TREE, reported in its annual "State of Home Insurance" analysis that the average price of homeowners insurance has increased by as much as 34% in some states since 2021.

According to the analysis, the average nationwide homeowners’ insurance bill of $1,766. Oklahoma has the nation’s most expensive insurance ($3,735) and Hawaii has the least expensive ($412). Insurance prices increased in 30 states from one year ago and decreased in 16 others.

"Depending on where you live you could be paying a lot more or a lot less — we've seen everything from a 25% decrease in Kentucky to a 34% increase in Idaho," said Nick VinZant, senior research analyst with QuoteWizard.

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On The Home Sales Front: But are people buying homes? Two new reports are pointing to declining sales activity.

This morning, the National Association of Realtors (NAR) reported that its Pending Home Sales Index (PHSI) dropped by 3.9% to 99.3 in April and was also down 9.1% from one year earlier. An index of 100 is equal to the level of contract activity in 2001.

“Pending contracts are telling, as they better reflect the timelier impact from higher mortgage rates than do closings,” said Lawrence Yun, NAR’s chief economist. “The latest contract signings mark six consecutive months of declines and are at the slowest pace in nearly a decade.”

Yun forecasted existing home sales would wane by 9% in 2022, noting that “escalating mortgage rates have bumped up the cost of purchasing a home by more than 25% from a year ago, while steeper home prices are adding another 15% to that figure. The vast majority of homeowners are enjoying huge wealth gains and are not under financial stress with their home as a result of having locked into historically low interest rates, or because they are not carrying a mortgage.

“However,” Yun added, “in this present market, potential homebuyers are challenged and thus may attempt to mitigate the rising cost of ownership by opting for a 5-year adjustable-rate mortgage or by widening their geographic search area to more affordable regions.”

Data published earlier this week by the U.S. Census Bureau and the Department of Housing and Urban Development found sales of new single‐family houses in April were at a seasonally adjusted annual rate of 591,000, which is 16.6% below the revised March rate of 709,000 and 26.9% below the April 2021 estimate of 809,000. Last month was the weakest recorded since April 2020, when the coronavirus pandemic paralyzed the U.S. economy.

The federal data put the median sales price of new houses sold in April at $450,600 while the average sales price was $570,300.

The decline of sales activity is not inspiring confidence among builders. The latest National Association of Home Builders (NAHB)/Wells Fargo WFC Housing Market Index found builder confidence in the newly built single-family home market crashing eight points to 69, the fifth straight month that builder sentiment sank and the lowest reading since June 2020.

“The housing market is facing growing challenges,” said NAHB Chief Economist Robert Dietz. “Building material costs are up 19% from a year ago, in less than three months mortgage rates have surged to a 12-year high and based on current affordability conditions, less than 50% of new and existing home sales are affordable for a typical family. Entry-level and first-time home buyers are especially bearing the brunt of this rapid rise in mortgage rates.”

Photo: Pexels/Pixabay.

Posted In: Department of Housing and Urban DevelopmentHousing BeatJoel KanMortgage Bankers AssociationNational Association of Home BuilderNational Association of RealtorsQuoteWizardU.S. Census BureauNewsPenny StocksSmall CapReal Estate