And the pendulum continues its mighty swing …
After two weeks of declines, Freddie Mac has reported [1] that the 30-year fixed-rate mortgage (FRM) averaged 5.23% for the week ending June 9, 2022, up from last week [2] when it averaged 5.09%. A year ago at this time, the 30-year FRM averaged 2.96%.
“After little movement the last few weeks, mortgage rates rose again on the back of increased economic activity and incoming inflation data,” said Sam Khater [3], Freddie Mac’s Chief Economist. “The housing market is incredibly rate-sensitive, so as mortgage rates increase suddenly, demand again is pulling back. The material decline in purchase activity, combined with the rising supply of homes for sale, will cause a deceleration in price growth to more normal levels, providing some relief for buyers still interested in purchasing a home.”
And with the rise in rates comes the anticipated dip on mortgage application volume, as the Mortgage Bankers Association (MBA) reported that application volume fell [4] to a 22-year low this week, falling 6.5% week-over-week.
“Mortgage applications have been declining [4], with both purchases and refinances seeing pullbacks in activity,” said Realtor.com's Senior Economist and Manager of Economic Research George Ratiu [5]. “Buyers of a median-price home are looking at a monthly mortgage payment that is 55% higher than it was a year ago, adding an extra $695 to their monthly expenses. Compounding these pressures, almost 20 states have average gasoline prices above $5 per gallon, pushing living expenses to new highs, especially as employers insist on squeezing workers back into offices.”
Freddie Mac also reported that this week, the 15-year FRM rose, averaging 4.38% (with an average 0.8 point), up from last week when it averaged 4.32%. A year ago at this time, the 15-year FRM averaged 2.23%. Also up this week was the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM), averaging 4.12% (with an average 0.3 point), up from last week when it averaged 4.04%. A year ago at this time, the five-year ARM averaged 2.55%.
“For many Americans looking for affordable pockets of housing, mid-sized cities remain a viable alternative, especially as the number of homes for sale has been on the rise, bringing fresh options,” said Ratiu. “The overarching challenge is balancing the ability to find a well-priced home, which often means traveling farther away from city centers, with the potential need to commute to an office. It is up to companies to maintain flexibility for a workforce which is being squeezed from all directions at once, or risk losing employees. The economic outlook is highly dependent on the well-being of the American consumer.”
Consumer outlook on the U.S. economy, however, remains bleak, as the latest Fannie Mae Home Purchase Sentiment Index (HPSI) [6] remained comparatively flat in May—decreasing by only 0.3 points—but inching nearer its 10-year- and pandemic-low of 63.0 recorded in April 2020. The HPSI measures consumers’ home purchase sentiment from Fannie Mae’s National Housing Survey (NHS) into a single number, measuring their current views and forward-looking expectations of housing market conditions. The HPSI found consumers still concerned about housing affordability, with the “Good Time to Buy” indicator reaching a new survey low, as 79% of respondents reported that now is a bad time to buy a home. Seventy percent of HPSI respondents anticipate a continued rise in mortgage rates over the next year.
“Consumers’ expectations that their personal financial situations will worsen over the next year reached an all-time high in the May survey, and they expressed greater concern about job security,” commented Doug Duncan [7], Fannie Mae SVP and Chief Economist on the latest HPSI readings [7]. “Further, respondents’ pessimism regarding homebuying conditions carried forward into May, with the percentage of respondents reporting it’s a bad time to buy a home hitting a new survey high. The share reporting that it’s ‘Easy to Get a Mortgage’ also decreased across almost all segments.”