Housing Beat: Mortgage Rates Fall Again, Home Price Growth Cools, Roe V. Wade Influences Homebuyers

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Zinger Key Points
  • Home price growth slowed in 97 of the 100 largest U.S. housing markets in May.
  • 96.9% of first-lien mortgages were current and performing by the end of the first quarter.

This week in the housing world, mortgage rates declined for the second consecutive week as home price growth slowed, the level of mortgage delinquencies remained low and the Roe v. Wade controversy permeated the homebuying process.

On The Mortgage Front: Freddie Mac FMCC reported the 30-year fixed-rate mortgage averaged 5.30% as of July 7, down from last week when it averaged 5.70%. The 15-year fixed-rate mortgage averaged 4.45%, down from last week when it averaged 4.83%. And the 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.19% with an average 0.4 point, down from last week when it averaged 4.50%. A year ago at this time, the 5-year ARM averaged 2.52%.

“Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percent, as concerns about a potential recession continue to rise,” said Sam Khater, Freddie Mac’s chief economist. “While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown.”

But declining mortgage rates did not spark a rise in home loan activity. The Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of mortgage loan application volume, dropped by 5.4% for the week ending July 1 compared to one week earlier. The seasonally adjusted Purchase Index was down 4% over the same period while the Refinance Index took an 8% tumble from the previous week and was also 78% below the same week one year ago.

Joel Kan, MBA’s associate vice president of economic and industry, observed that mortgage rates “are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed. Purchase activity is hamstrung by ongoing affordability challenges and low inventory, and homeowners still have reduced incentive to apply for a refinance.”

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On The Homebuying Front: Prospective homebuyers are still facing a market carrying more than its fair share of challenges.

The Data & Analytics division of Black Knight, Inc. BKI reported that home price growth slowed in 97 of the 100 largest U.S. housing markets in May, with the national annual appreciation rate slowing to 19.3% from a revised 20.4% in April.

This marked the largest single-month deceleration since 2006, although prices were still up 1.5% month over month and were nearly twice the historical average for May.

Black Knight added that housing is now the least affordable it has been since the mid-1980s, when sharp Federal Reserve hikes resulted in double-digit mortgage rates and a payment-to-income ratio that was greater than 50%.

“The record-low listing inventory that had been driving these price gains nationwide has also begun to improve, albeit slightly,” said Black Knight Data & Analytics President Ben Graboske. “Indeed, even with an increase in active listings of 107,000 in May — nearly double the traditional seasonal rise for the month — we are still 60% below the number of active listings we would normally see at this time of year.”

Graboske added that while all of the major U.S. housing markets are still dealing with inventory deficits, “some have seen their shortages shrink much faster than others. Among these are some of the hottest housing markets in recent years: San Francisco, San Jose and Seattle. Unsurprisingly, these are also among the markets seeing the strongest levels of cooling so far this year, with annual home price growth rates in each down more than three percentage points in recent months.”

However, the concept of “cooling” might be subjective. New data from the Seattle-headquartered brokerage Redfin Corp RDFN determined that the median asking price of newly listed homes increased in June by 15% year-over-year to $405,547, although it was also 1.5% lower from the all-time high of $418,000 recorded during the four-week period ending May 22.

Redfin also noted the monthly mortgage payment on the median asking price home increased to $2,459 at the current 5.7% mortgage rate, but is down slightly from the peak of $2,494 during the four-week period ending June 12. Still, that figure is up 45% from $1,694 one year earlier, when mortgage rates were 2.98%.

Nonetheless, Redfin Chief Economist Daryl Fairweather stated that home sellers are ceding to pressure on affordability created by the rapid rise in mortgage rates.

“Data on home-tours, offers and mortgage purchase applications suggest that homebuyers have noticed the shift in power and are no longer leaving the market in droves,” said Redfin chief economist Daryl Fairweather. “Buyers coming back will provide support to the housing market, but between now and the end of the year I think the power will continue to shift towards buyers, resulting in mild price declines from month to month.”

On The Politics Front: In a separate data report, Redfin found the recent decision by the U.S. Supreme Court to overturn the 1973 Roe v. Wade ruling is influencing homebuying choices. A poll of potential buyers found 15% of respondents who recently moved insisted they would not live in a place where abortion is fully legal while 12% said they would only live in a place where abortion is fully legal. Other respondents were not as intense in their partisan vehemence: 17% said they “prefer not to” live somewhere abortion is fully legal and 28% said they “prefer to” live in such a place.

“Before the pandemic, abortion was legal in every state — although, not necessarily accessible,” said Fairweather. “Homebuyers were migrating across state lines before those state lines had such drastic repercussions. I believe that now movers are going to take the state laws in place more seriously. Affordability is always going to be the top concern for homebuyers, but I think moving from a place like Los Angeles to Austin will be a more difficult decision for some women.”

On The Delinquency Front: A degree of good news came from the Office of the Comptroller of the Currency (OCC), which reported 96.9% of first-lien mortgages were current and performing by the end of the first quarter — one year earlier, that share was 94.2%.

The percentage of seriously delinquent mortgages — mortgages 60 or more days past due and all mortgages held by bankrupt borrowers whose payments are 30 or more days past due — was 1.8% in the first quarter of 2022, down from 2.3% in the prior quarter and 4.6% one year ago.

The OCC also reported that mortgage servicers initiated 19,524 new foreclosures in the first quarter. However, this was attributed to the expiration of federal COVID-19-related foreclosure moratoria and is comparable to the pre-pandemic level.

The Federal Housing Finance Agency (FHFA) also weighed in on the subject, reporting that Freddie Mac and Fannie Mae FNMA completed 129,779 foreclosure prevention actions during the first quarter, with 75% of loan modifications reducing borrowers' monthly payments by more than 20%. The number of refinances decreased amid rising mortgage rates from 1,266,043 in the fourth quarter to 899,518 in the first quarter.

The serious delinquency rate for Freddie Mac and Fannie Mac declined from 1.19% to 0.97% at the end of the first quarter, a lower level than the 5.33% for Federal Housing Administration loans, 3.15% for Department of Veterans Affairs loans and 2.39% percent for all loans.

Photo: Dan Moyle / Flickr Creative Commons

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