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Mortgage demand is suffering due to a lack of available homes for sale
Mortgage rates dropped last week, with 30-year fixed-rate conforming loans falling to 6.40% from 6.45%. Despite this, demand for home loans didn't increase due to a lack of supply in the housing market. Mortgage applications to purchase a home dropped 4% last week, 35% lower than a year ago.
The housing market hasn't seen the usual seasonal surge, with new listings down 20% YoY in March. Total inventory is about half of what it was pre-Covid in 2019. Jumbo loan mortgage rates increased to 6.36%, suggesting banks may be tightening credit.
Demand for FHA and VA loans declined more than conventional loans. Affordability remains a challenge for first-time homebuyers, particularly millennials. Applications to refinance a home loan also fell, down 5% for the week and 59% lower YoY. Refinance share of mortgage activity decreased to 28.6%, as rates are 150 basis points higher than the same time last year.
Many homeowners are choosing not to sell their homes this spring
Although buyers are returning to the market and mortgage rates have dropped, potential sellers remain hesitant. New listings in March were down 20% YoY and nearly 30% below pre-pandemic levels, according to Realtor.com. Active inventory is 60% higher than last spring but still half of pre-pandemic levels.
Homes now spend an average of 54 days on the market, up from 36 days last spring. Mortgage rates are rising again, with the 30-year fixed at 6.61%, 2 percentage points higher than last year. Homebuyers are sensitive to rate changes, which will impact the housing market's performance this year.
Home prices have been falling for the past seven months, but some markets still see price gains. In March, list prices declined in Austin and Las Vegas, two markets popular with transplants during the pandemic. As a result, the housing market's future performance will depend on mortgage rate fluctuations and seller activity.
In February, pending home sales barely saw a gain due to the increase in mortgage rates
In February, higher mortgage rates impacted the housing recovery, with pending home sales rising only 0.8% MoM, 21.1% lower YoY. Mortgage rates increased, reducing homebuyers' purchasing power. The 30-year fixed mortgage rate began February at 6% and closed at over 7%.
Sales increased MoM in all regions except the West, where they fell 2.4%. The Midwest and South led the recovery, with improved mortgage rates due to federal guarantees. Residential mortgage loans are expected to be more readily available, despite potential challenges for commercial loans.
Home prices remain high historically, but price drops may have stalled in January due to increased buyer demand and short supply.
Bank volatility increases mortgage demand, however it might only last a short while
Banking system stress led to lower bond market yields, causing mortgage rates to drop and mortgage demand to rise 2.9% compared to the previous week. However, rates are now increasing again. Last week, the average 30-year fixed-rate mortgage for conforming loans fell to 6.45% from 6.48%.
Refinance applications increased 5% but were 61% lower YoY. Homeowners have little incentive to refinance due to lower existing interest rates. Purchase mortgage applications rose 2%, yet remained 35% lower than the same week last year.
Buyers are returning for the spring season but face limited inventory. Home-price growth has slowed, improving buyers' purchasing power. However, mortgage rates have risen more than 20 basis points this week, which could cause rates to resume their previous upward trajectory.
