Report: First-Time Homebuyer Activity Shows ‘Signs of Life’

Last week, mortgage rates declined after a few weeks of spiking near the 5.5% mark, and creeping toward 6%. But, despite this slight dip, the Mortgage Bankers Association (MBA) reported that overall mortgage application volume remains at levels last seen in the year 2000, as mortgage apps decreased 1.2%—according to its Weekly Mortgage Applications Survey for the week ending August 19, 2022.

The Refinance Index decreased 3% from the previous week, and was 83% lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 1% from one week earlier. The unadjusted Purchase Index decreased 2%, compared with the previous week, and was 21% lower than the same week one year ago.

“Mortgage applications continued to remain at a 22-year low, held down by significantly reduced refinancing demand and weak home purchase activity,” said Joel Kan, MBA’s Associate VP of Economic and Industry Forecasting. “Last week’s purchase results varied, with conventional applications declining 2%, and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity. The average purchase loan size continued to trend lower, as purchase activity at the high end of the market is weakening.”

Of that share of governmental loans, the FHA share of total applications increased to 12.5%, up slightly from 12% the week prior. The VA share of total applications increased to 11.6%, also up slightly from 11.2% the week prior. The USDA share of total applications increased marginally to 0.7% from 0.6% the week prior.

The overall refinance share of mortgage activity decreased to 31.1%, down marginally from 31.2% the previous week.

Volatility in rates continues to keep prospective buyers away from the adjustable-rate mortgage (ARM) market, as the share of ARM activity decreased to just 6.5% of total applications.

Buyers, continued to be hampered by inflationary and affordability concerns, remain on the sidelines, ready to pounce once the market begins to show signs of normalcy.

According to the recent Builder Application Survey (BAS) for July 2022 published by the MBA, mortgage apps for new home purchases fell 16.1% year-over-year, dropping for the fourth consecutive month. Compared to June 2022, applications decreased by 7%, a change that did not include any adjustment for typical seasonal patterns.

“Mortgage applications to purchase newly built homes weakened in July, as prospective homebuyers continue to delay decisions because of economic uncertainty and still-high home prices and mortgage rates,” added Kan. “The slide in purchase applications for new homes–now down for the fourth consecutive month, and 16% lower than a year ago—is consistent with data on declining homebuilder sentiment and slowing permitting activity for new construction.”

Are lower mortgage rates simply a mirage as they seem to zig-zag weekly and keep prospective buyers out of the buying game? After dipping slightly below the 5% mark to 4.99% a few weeks back, rates shot back up again to the 5.25% range before settling down a bit last week at 5.13%. Still, rates remain nearly double the rate they were at just one year ago, as a year ago at this time, the 30-year fixed-rate mortgage averaged just 2.86%.

For some, the slight dip in rates may be reason enough to exit the rental market and embark on the path to homeownership, as Redfin recently reported that the national median asking rent for July 2022 was up 14% year-over-year (and 0.6% month-over-month) to an average of $2,032 per month. This marked the smallest annual increase in rent asking prices since November, compared to a 15% increase in June, and 16% in May.

One byproduct of higher home prices is not only a decrease of once hotly-contested bidding wars, but also an influx of homes to replenish a suffering housing inventory. The National Association of Realtors (NAR) identified 148 of the top 185 metropolitan areas (80%) that posted double-digit home price gains in Q2, up from 70% recorded during the first quarter of 2022. NAR reported that the price of a median single-family home hit $400,000 for the first time on record in Q2—then surpassed it—finally ending at $413,500 by the end of the second quarter.

“The buyers who are still in the game are finally getting a break from bidding wars, which means they can be picky,” said Raleigh, North Carolina Redfin Agent Pam Lewis. “Three months ago, buyers were saying, ‘Get me a building with four walls and I’ll make it work.’ Now they have some choices. They don’t want a home if it doesn’t have the fenced-in yard or guest room on their wish list, and they want a $20,000 price reduction if a home has been on the market for more than a week. I’m telling buyers they’re not likely to see their property values decrease over time, but they may not appreciate as fast as homeowners have become accustomed to in the past few years.”