Cooling Inflation Boosts Rise in Mortgage Apps

According to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 14, mortgage applications increased 1.1% week-over-week, amid a slight drop in the 30-year fixed-rate mortgage (FRM).

The MBA’s Refinance Index increased 7% from the previous week, and was 32% lower than the same week one year ago. The seasonally adjusted Purchase Index fell 1% from one week earlier, and the unadjusted Purchase Index increased 24% compared to the previous week, and was 21% lower than the same week one year ago.

The refinance share of mortgage activity increased to 28.4% of total applications from 26.8% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3% of total applications.

“Mortgage rates declined last week, as markets responded positively to incoming data showing that U.S. inflation continues to cool. Most rates in our survey declined, with the 30-year fixed rate falling to 6.87%,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “Refinance applications increased more than 7%, but that activity accounted for only 28% of applications, and was more than 30% behind last year’s pace. Despite last week’s lower rates, purchase applications decreased, as home purchase activity is still being held back by low housing supply and rates that are still much higher than a year ago.”

By loan type, the FHA share of total applications increased to 13.6% from 13.3% the week prior. The VA share of total applications decreased to 12.1% from 12.6% the week prior. The USDA share of total applications increased to 0.5% from 0.4% the week prior.

Redfin’s latest Housing Market Tracker for June 2023 found the median U.S. sale price was $426,056 or 1.5% ($6,341) below the all-time high of $432,397 set in May 2022. June’s median sale price was down 0.6% early from a year earlier—the smallest decline in the past five months while the average home sold for more than its list price for the first time in roughly a year.

“Today’s housing market is extraordinary; it feels hot even though there are very few homes changing hands,” said Redfin Chief Economist Daryl Fairweather. “Sellers are getting multiple offers if their home is priced well and in a desirable area even though there aren’t a lot of buyers out there. That’s because house hunters have so few homes to choose from. More buyers are starting to come out of the woodwork as they get used to elevated mortgage rates, which is making the market feel even hotter.”

According to Fannie Mae's Economic and Strategic Research (ESR) Group, an extremely limited number of existing homes available for sale continues to be the defining feature of today’s housing market. While total home sales remain near the lowest annual level since 2009, this is not due to lack of demand. Rather, the ongoing lack of inventory, the extent of which exceeded the ESR Group’s earlier expectations, has resulted in significantly stronger home price appreciation than previously anticipated. Dynamics in the existing sales market have been highly supportive of new construction, though, and the ESR Group has significantly upgraded its single-family starts forecast. Still, given the ESR Group’s expectation of slowing economic activity through the end of the year and into 2024, it continues to anticipate slowing home price growth and a slower pace of starts in 2024.

"We began discussing our expectations of a supply shortage in late 2014, and it remains front and center in the housing market in 2023," noted Douglas G. Duncan, SVP and Chief Economist, Fannie Mae. "The supply of existing homes is near the 2009 crisis low, and it's showing no signs of easing. This puts the onus on homebuilders and can be seen in the construction data. There is uncertainty about the real financial capability of households enabling continued support for the economy and housing. Estimates of 'excess saving' vary widely in accordance with what is assumed to be a 'normal' saving rate. The recent difficulties in the banking sector have led to some credit constraint, usually a harbinger of slowdown in economic activity. As we noted in our April 2022 forecast, whether there is a mild recession (our base case) or a soft landing, the supply issues in housing will provide a downside cushion for economic activity. That is playing out quite close to forecast on existing homes, but new construction has been even more supportive than we expected."