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Mortgage application volume increased for the second consecutive week as interest rates continued to decline. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that volume, was 2.2 percent higher during the week ending November 18 than the prior week on a seasonally adjusted basis and up 10 percent before adjustment. MBA had adjusted its data for the week ended November 11 to account for the Veterans’ Day holiday. The Refinance Index increased 2 percent from the previous week and was 86 percent lower than the same week one year ago. The refinance share of mortgage activity increased to 28.4 percent of total applications from 27.6 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index chalked up its third consecutive week of improvement, increasing by 3 percent. The unadjusted version gained 9 percent compared with the previous week and was 41 percent lower than the same week one year ago. [purchaseappschart] “The 30-year fixed-rate mortgage fell for the second week in a row to 6.67 percent and is now down almost 50 basis points from the recent peak of 7.16 percent one month ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The decrease in mortgage rates should improve the purchasing power of prospective homebuyers, who have been largely sidelined as mortgage rates have more than doubled in the past year. As a result of the drop in mortgage rates, both purchase and refinance applications picked up slightly last week. However, refinance activity is still more than 80 percent below last year’s pace .”
The state of the housing market in 2022 is well known by now. The sharpest rate spike in 40 years to the highest rates in 20 years combined with the overvaluation from 2 years of brutally fast appreciation to create a rapid cooling in demand and, more recently, prices. Slightly less obvious to those outside the industry is the extreme and ongoing inventory crunch. Units available for sale continue treading water at record lows. This is noticeably different from the most recent example of plummeting sales (2006-2008) when inventory began stacking up almost immediately. We can get a slightly more focused look at the "sales vs inventory" metric by simply subtracting one from the other. The following chart shows sales vs inventory. This is a better gauge of the contraction in sales. In this light, sales are right back in line with pre-covid levels as opposed to back at 2012's levels. None of the above is intended to "cheer-lead" a gloomy housing situation, because it's certainly not upbeat right now. Rather, the only goal is to adjust the level of gloom to acknowledge the abysmal inventory conditions. Other highlights from today's data: Time on market: 21 days vs 19 days previously First time buyers = 28% of the market, 29% previously Cash sales = 26% up from 22% previously Investors bough 16%, up from 15% previously Comments from NAR Economist Lawrence Yun: "Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers. In October, 24% of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8%."
There aren't many ways to make the Census Bureau's New Residential Construction report exciting, and there are zero ways to frame it in a positive light (unless you want the old "it can only go down for so long before it comes back up"). So let's just get through this and try to pluck out one or two interesting tidbits. First off, if we're just looking at the two main headlines in the data (housing starts and building permits) in the context of the past 10 years, things actually could be quite a bit worse. Sure, there's been a massive contraction from the peak, but the peak was driven by ravenous, temporary demand. It's no mystery that housing-related metrics have suffered in an environment dominated by the fastest rate spike in 40 years to the highest levels in 20 years. But not every housing metric is suffering. Take "units under construction" for instance. It just hit a new record. Is that a good thing or a bad thing? Based on the previous spikes (1978, 1986, 2006), it's arguably not great, but the big difference between now and then is that we only have a big spike in units under construction because housing completions haven't been keeping pace with housing starts and building permits. The build up of "under construction" units is increasingly a factor of the multifamily sector, which hasn't experienced the same drop as single family construction in terms of permitting. The NAHB has a telling chart in their coverage of single vs multi fam construction. It shows the build up of multi fam units under construction and the decline of single fam.