Just in time for the big jump in interest rates seen after yesterday's Fed announcement, the latest Existing Home Sales data from the National Association of Realtors (NAR) shows sales at the highest seasonally adjusted pace since March. Compared to the same time last year, sales are up 6.1%--the best year over year improvement since June 2021. To be fair to the data, it is definitely looking better than most of the past year and a half. It's also true that adding 1 to 1 is a 100% increase while adding 1 to 100 is only a 1% increase. In other words, it's great that we're up 6.1% year over year--no objections there--but in broader context, we're really just muddling through home sales purgatory. Much like our assessment of things like mortgage applications, this sideways grind at long-term lows could also be seen as a "can't get any worse" moment. Therefore, it can only get better. NAR's Yun agrees, saying "Home sales momentum is building. More buyers have entered the market as the economy continues to add jobs, housing inventory grows compared to a year ago, and consumers get used to a new normal of mortgage rates between 6% and 7%." It remains to be seen how home sales will react now that rates are back over 7%--a development is perhaps too recent to have been considered in Yun's assessment.
Heading into the first part of December, mortgage rates were at their lowest levels in a month and a half. Much of the improvement from the recent highs occurred in a single week (the last week of November). That made for an obvious and logical uptick in refinance applications the following week, according to the Mortgage Bankers Association's (MBA) application survey. In the latest numbers reported this morning, the refinance index didn't change much after that, which is "good" at face value because it means refi activity remained at the modestly elevated levels reported last week. But things start looking less than good when we add context from the September mini-refi-surge. As has been and continues to be the case, none of the recent activity amounts to much when compared to the true refi booms of the past. Unfortunately, that line will have an even harder time moving up in the coming weeks. This afternoon's Fed announcement was not well received by the rate market. Mortgage rates are moving up quickly even though the Fed cut its policy rate. The average lender is already back up to the recent highs seen in early November. Movement in purchase applications has been less interesting and less eventful by comparison. Simply put, there hasn't been much movement for at least a year. Other highlights from today's data: Refi apps accounted for 46.7% of the total vs 46.8 last time FHA share of total apps increased to 17.6 from 16.5 VA share declined to 15.3 from 16.3 Rates rose to 6.75 from 6.67 (note: that refers to MBA's survey rate for last week. Average daily rates are back over 7% as of this afternoon)
The Census Bureau releases its report on New Residential Construction each month which offers 3 key metrics: building permits, housing starts, and housing completions. Of those, the first two are most closely watched. There is typically a solid buffer between permits and starts. After all, housing construction cannot "start" unless it is "permitted." Oftentimes, there's a divergence between housing starts and building permits on any given month. This is one of them. This data series has been fairly unremarkable recently. Construction continues running above pre-pandemic levels, but new homes have been started at a slower and slower pace. That might sound problematic until one considers that 2024 has seen the highest pace of completions since 2006. Bottom line, housing definitely surged in 2021 and early 2022, and it has definitely cooled off since then, but the cooling has been very orderly compared to some past episodes. One last nuance to consider in today's data (and in general, for this data series) is the divergence between single and multifamily housing starts. Single fam has been doing much better recently--still easily holding above pre-pandemic levels. Multifamily starts, however, are near their lowest levels in a decade.
The National Association of Home Builders (NAHB) and Wells Fargo publish the Housing Market Index (HMI) each month. The industry refers to this as "builder confidence" and December's number came out today. It was right in line with November's, and it suggests builders are increasingly honing in on a relatively gloomy baseline in the bigger picture. There are several ways to approach the languishing of the index, with the easiest being some combination of single family construction (which capture the initial drop in 2022) and multi-family construction (which, along with persistently high rates, helps explain why the index may not have recovered). Both are charted below. Ultimately, actual construction figures are a better indicator of the housing market than sentiment surveys, but the latter can offer some insight to trends and future opportunities. On that note, the component of the builder survey that tracks the outlook for 6 months into the future continues moving to the highest levels since 2022. As seen the following chart, it's less "sideways" and better described as gently trending higher. Other highlights from today's release: 31% of builders cut prices in December, vs 31% in Nov Average price reduction was also unchanged at 5% Sales incentives were used in 60% of transactions, also unchanged from Nov
The Mortgage Bankers Association is out with the latest survey of mortgage applications and refinance activity led the charge this week. In fact, purchase activity declined a bit and refis saw their best weekly gains since September. The following chart shows the week over week change in the refi index: At first glance, it would be easy to assume that this is due to some sort of distortion in the week after Thanksgiving, but if that was the case, we would have seen a similar outlier in the other direction last week. It's more likely that the sharp decline in rates is the x factor. Notably, MBA's weekly survey data only shows rates declining from 6.69 to 6.67, but MND's daily rates tell a different story with a drop from 6.88 to 6.68. That 0.20% decline would certainly be enough to account for the jump in activity, especially in a market where the outright activity is so historically low. Other highlights from this week's MBA survey: Refi share of total apps increased to 46.8% from 38.7% Share of VA applications increased to 16.3% from 13.6% 5/1 ARM rates dropped to 5.81 from 6.24
The Mortgage Bankers Association (MBA) released its weekly application survey results on Wednesday. The highlight was a 12.43% increase in purchase applications from the previous week. That brought the purchase index to the highest levels since February. As has been and continues to be the case, there's an obvious counterpoint to any of these periodic surges: the broader context. In other words, yes, these are the highest levels since February, but even if we go back to February 2023, the range since then is historically low and sideways. With that in mind, we're equipped to digest the refinance index with a grain of salt. At first glance, we might lament the evaporation of the recent surge in September. But the broader context suggests that we can simply be in a perpetual state of lamenting refi demand for more than 2 years now. Other highlights from this week's application data (current week change % vs previous week): Refinance share of total apps 38.8 vs 41.0 FHA share of total apps 16.0 vs 16.6 VA share of total apps 12.4 vs 13.6 Week over week change in interest rates Conforming 30yr fixed 6.86 vs 6.90 Jumbo 30yr 6.97 vs 7.03 FHA 30yr 6.61 vs 6.68
Even on a good day, the Census Bureau's New Residential Sales report has a notoriously wide margin of error. But today's 12.8% margin of error isn't even the best counterpoint to today's ostensibly alarming 17.3% month over month decline. After all, that would still be at least a 4.5% decline. Another counterpoint--also not remotely the best one--would be that home sales continue to operate in the same sideways range that's been intact for nearly 2 years now: So what is the best "yeah but?" It's very simple, and it should become clear when you take a look at the geographical distribution of this month's losses. For those that gloss over at the sight of big tables of numbers, the critical observation here is whopping 27.7% decline in home sales in the South, as well as the fact that the outright number of sales is far below any other month going back to October 2023. In fact, every other region has at least 3 other months in the past 12 that have come in lower. Connecting the dots, many of us will remember that October brought the uniquely disruptive category 5 Hurricane Milton. Long story short, it would have been a surprise NOT to see a massive drop in home sales activity in the south in October. Really, the only curiosity here is that economic forecasters didn't have weather effects priced into their models.
There are two key, big picture home price indices in the U.S. They come out every month, but with a 2 month lag. That means we're getting September's prices today. The two indices are: S&P Case Shiller, which focuses on a smaller data set that tends to detect trends sooner, but also in a more volatile way FHFA, a U.S. government agency that ultimately captures about as many transactions as could possibly be captured, thus producing the broadest and most authoritative update on home prices. For this reason, it serves as the foundation for updating the annual conforming loan limit. What happened with September's data? The more volatile Case Shiller data declined by 0.3% in September while FHFA's broader data set showed 0.7% growth. These discrepancies aren't uncommon. Moreover, both are reflecting a mid-4% rate of appreciation in annual terms. What are the implications for conforming loan limits, and what even is a conforming loan limit (CLL)? The CLL is the highest loan amount that can be guaranteed by housing agencies Fannie Mae and Freddie Mac. Their guarantee allows for several advantages ranging from standardized automated underwriting capabilities to generally lower interest rates. There is a base loan limit, but some of the most expensive counties can be 150% of that limit. The previous loan limit was $766,550.
As you may have gleaned from our coverage of new home sales, construction, builder confidence, and mortgage apps recently, there are only so many ways to describe the same phenomenon. Today's report on October's Existing Home Sales from the National Association of Realtors (NAR) is just another player on that same stage. Like the others, it's languishing at the lowest levels in a long time and cutting a broadly sideways path. Like the others, we can tie the big drop in 2022 to the big rate spike in 2022. After the problematic time frame highlighted in the chart below, little has changed for sale or rates in the bigger picture. This particular data series has one other interesting nuance and it has to do with inventory levels. Existing home inventory has a very reliable pattern of peaking in the summer and bottoming out around the new year. 2023's inventory peaked much later in the year and now this year, the peak has yet to show up! What should we make of this? Are more people listing their homes or are fewer people buying the homes that are listed? Turning to Redfin's housing data center (which is not the same data set as the Existing Homes data, but may provide some insight), the suggestion is that the sales slowdown has more to do with the inventory building. The chart below shows that 2024's new listing levels closely match 2023's up to this point in the year. Other highlights from this month's NAR Existing Sales report:
