Having inched up 0.2 percent on a seasonally adjusted basis last week, mortgage loan application volume in the U.S. has since dropped 3.0 percent in the absolute or 2.3 percent on an adjusted basis, with another 2 percent drop in purchase mortgage activity, which was down 18 percent on a year-over-year basis.
As such, mortgage application volume in the U.S. has dropped back down to a 22-year low, despite an increase in the inventory of both new and existing homes for sale across the country, with “purchase applications continu[ing] to be held down by rapidly drying up demand,” according to the Mortgage Banker Associations’ Associate Vice President of Economic and Industry Forecasting and which shouldn’t catch any plugged-in readers by surprise.
“mortgage application volume in the U.S. has dropped back down to a 22-year low, despite an increase in the inventory of both new and existing homes for sale across the country, with “purchase applications continu[ing] to be held down by rapidly drying up demand,”
Sounds like something price drops can fix.
Wrong. Real estate defies all natural laws.
Because people in the U.S. think that real estate is a can’t lose investment. At best you can always take a home and turn it into an illegal hotel a la AirBnB or a rental if you don’t want to live in it. At worst, it’s a place to live so you aren’t exposed to the depredations of landlords and their rent hikes that outstrip your increase in income. No one really expects a repeat of the so-called “financial crisis” where large numbers of home owners were forced to sell because their mortgages became unaffordable, this time.
According redfin, twenty-three percent of those who signed a contract to buy a home in N. California backed out of the deal before closing. That is double the number from last year. My read of that is buyers don’t want to be left holding an asset which is declining in value due to tightening financial conditions. They’d rather wait until the market bottoms, and it is early days so far.
UPDATE: Mortgage loan application volume dropped another 3 percent over the past week, with a 2 percent drop in purchase activity, which is now down over 20 percent on a year-over-year basis and the average purchase loan size is dropping with a “weakening” of activity at the high end of the market (i.e., the mix of sales is starting to normalize).
Year over year comparisons between 2021 and any year will be stark.
Considering the rapid decline in the market(s), that’s true. But once again, mortgage application volume in the U.S. is at a 22-year low, existing home sales are back below pre-pandemic levels, and the pace of new home sales is the lowest since the fourth quarter of 2015 and dropping, it’s not simply a “year-over-year” decline.
Or as we foretold at the end of last year, multiple rate hikes this year “should translate into higher mortgage rates, less purchasing power for buyers and downward pressure on home values,” none of which should catch any plugged-in readers, other than the most obstinate, by surprise.
Well, yes, but mortgage application volume is of course looking like that as the refinance market has cratered. The links there are national. My fault as this whole thread is national anyway.
Closer to home, inventory levels in San Francisco are now 50 percent higher than average over the past decade, 115 percent higher than prior to the pandemic and 180 percent higher than in August of 2015, with the number of homes in contract down 39 percent on a year-over-year basis, 28 percent lower than in 2020, and dropping.
But again, it’s not simply a year-over-year or mortgage volume issue, with existing home sales back below pre-pandemic levels and the pace of new home sales the lowest since the fourth quarter of 2015 and dropping, all despite an increase in supply.
It’s also true that lots more housing units have been getting built since 2015 ended. With the exception of 2018 we’ve put an average of 2000 more units per year over that six years or so. Most of them are condos. And condos have pretty clearly diverged from single family homes, performance wise. Folks just don’t think of condos the same way they used to pre-pandemic.
In fact, condos not only make up the majority of the market in San Francisco, and have for over a decade, but tend to be a leading indicator for the market as a whole.
You posit that a great deal on here. Do you deny that consumers began thinking differently about condos during the pandemic? or that a greater supply of condos started hitting the market over the past few years? How long is the lead time of the indication? At what point does divergence begin to undermine the leading indicator maxim?
The thoughts people had over the past two years, in terms of condos versus single-family homes and neighborhoods, in reaction to the environment at hand, are changing as well, with work, social and population patterns reverting back to pre-pandemic norms. In other words, what some mispronounced as the “new normal” is turning out to be an exception and relatively short lived.
I tend to think that condos will begin to lose the pandemic stigma as we go on as well. We’re not there yet however. And, again, the condo supply has increased mightily over the last several years as opposed to years past. Conversely, single family homes are not being built anew by any appreciable measure. That’s a stark break between the two types as well. Don’t really think that’s too arguable.
Again, condos have represented the majority of the market in San Francisco for over a decade. And while people do have preferences, condos and single-family homes compete for buyers and are more fungible than many would like to admit or understand.
Can you explain what you mean when you say that “condos . . . tend to be a leading indicator for the market as a whole”? If condos are a majority of the market, how can they be a leading indicator of the market rather than simply a present indicator?
For starters, “majority” is not synonymous with “whole.”
A better mental model is that condos are more volatile than SFH, so when there historically has been an overall drop in housing prices, it hit condos first. The real question is: does a drop in the condo market mean an overall drop in the housing market?
For Investors: Better sell those condos before it’s 1929 again
For SFH buyers: No, there’s no hard link between the two, you will still get outbid with 0 contingencies and a briefcase full of bearer bonds
For realtors: Only care about volume, “Those are rookie numbers, ya gotta pump those numbers up”
The condo market is definitely more volatile than the single-family home market, as we’ve noted for years. But the notion that there isn’t a link between the two is simply wrong. Once again, the condo market is typically a leading indicator for the market as a whole.
And in terms of buyers getting “outbid with 0 contingencies and a briefcase full of bearer bonds,” 23 percent of the single-family homes currently on the market in San Francisco have been reduced at least once with 16 percent more single-family homes on the market than at the same time last year and nearly 70 percent more than prior to the pandemic.
Speaking of which: Amazing Eureka Valley Home Further Improved, Just Reduced.