Mortgage Services

There hasn't been meaningful change in economic data that measures activity in the housing and mortgage markets. In a nutshell, activity has been drifting along at long-term lows.  The weekly survey of mortgage application activity from the Mortgage Bankers Association (MBA) is no exception, for the most part.  Refinancing picked up in the summer months as rates fell, but not to historically strong levels, by any means. Purchase applications appear to be more volatile, but that's a factor of a narrower overall range.  They've been even more sideways. As of last week, both purchase and refi applications were effectively at the lowest levels of the year.  We knew the application landscape would be challenging due to the big jump in rates that hadn't yet been captured in last week's data.  The saving grace was the potential for seasonal distortions surrounding the New Year holiday.   Holidays that fall on specific dates can create inconsistencies in seasonal adjustments in economic reports. Last year saw New Year's Day fall on a Monday, which was less of a disruption to the business week compared to this year's Wednesday holiday. Perhaps the applications that tend to come in after the holiday were delayed by few days as a result, thus helping explain why applications rose for both purchases and refis despite the higher rates. Purchase activity was actually the highest in nearly a year.

2024 has been one of those "it is what it is" sort of years for activity in the mortgage market.  There were signs of hope over the summer months as rates fell enough to make for a noticeable spike in refinance activity.  But with the rapid reversal starting in October, refi demand is right back in line with long term lows according to the Mortgage Bankers Association's (MBA) refinancing index. It's hard to see in the chart, but this week's survey actually showed a modest increase over last week, the difference is inconsequential as both are effectively the lowest levels since late 2023. The purchase side of the market has been less eventful, but no less depressing. This application data was collected well before this week's jobs report and subsequent rate spike.  As such, we wouldn't expect any resilience in next week's numbers.  On the brighter side, present levels are so repressed that we also wouldn't expect much more of a contraction.

Blessings, curses, enigmas, paradoxes, etc... The state of home price appreciation in the U.S. is all of the above.  The positive case for home prices is as simple as glancing at the most recent update on the two major home price indices (HPIs) released this week by FHFA and Case Shiller.  Both agree that homes continue to appreciate at a historically elevated pace. Note the extreme difference between the price correction seen in early 2023 and the outright price depression associated with the Great Recession more than a decade earlier.  It goes without saying that if appreciation is going to decline (or even briefly turn negative, in the case of Case Shiller), this is what we'd want things to look like if we're interested in maintaining healthy levels of demand among buyers. The counterpoint is that 4-7% annual growth in home prices significantly outpaces growth in income.  In other words, it's not sustainable.  Combine that with mortgage rates over 7% and it's an easy recipe for extremely poor affordability.  What can help affordability?  Here's a list: Home prices could fall Rates could fall Homes could get smaller (this would effectively make prices lower, but not in a way that would show up in the home price indices due to what's known as "repeat sales" methodology) Builders could build more homes/apartments/etc, and at a faster pace Multiple roommates/families under one roof sharing expenses The balance of other expenses could go lower