As we noted last week, the timing of the improvements in mortgage rates meant that the previous survey of mortgage applications from the MBA was unable to capture what would likely prove to be a fairly big uptick in refinance demand. This week's data confirmed it as the refi index jumped to the best levels since October. Unsurprisingly, this coincided with rate moving back to the range seen in mid-October, although it is somewhat surprising that we didn't see a better spike in refi demand in early December when rates were in the same zone. As has been and continues to be the case, we're taking victories where we find them. Refi demand is operating on an entirely different scale than in the past (when a rate rally meant that far more homeowners would benefit from refinancing). Purchase demand is always less influenced by short term rate fluctuations. This week was no exception with MBA's purchase holding almost perfectly steady and continuing to operate in the same broadly sideways range that's been intact for 2 years.
As is the case almost every week of the year, the Mortgage Bankers Association released its weekly mortgage app survey this week, showing the changes in purchase and refinance applications. We can skip right past any discussion or analysis of the purchase application index as it was almost identical to last week, not to mention reluctant to be influenced by interest rate movement in the first place. Refinance demand, on the other hand, is notoriously beholden to rate fluctuations. As such, it was somewhat surprising to see the refi index decline by about 3.6%. After all, last week's mortgage rates were lower than the previous week's, and continued to fall throughout the week. While it's true that rates were lower last week, it's important to remember MBA's methodology. Application data is collected through the previous Friday and then reported on the following Wednesday. Mortgage rates only began moving lower in any serious way on Thursday. That means the survey didn't have much time to benefit from the rate drop this time around. Given the pace of rate improvement since then, it would be a much bigger surprise to see another counterintuitive movement in next week's data. If precedent is an indication, refi demand could once again challenge the best levels since October 2024.
The Census Bureau released new home sales data for January this week, and the annual pace was a seemingly significant 10.5% lower than last month's pace. But before you devote even one extra BPM of your heart rate to the news, please look at a longer-term chart of the data in question. Home sales are indeed lower versus last month, but caveats abound. First off, last month was revised up from 698k to 734k (annual pace). January's 657k is only 5.9% lower from the unrevised number. It's also good to keep in mind that this data has a notoriously wide margin of error (±19.9 percent in the present case, according to the Census Bureau). But even if the data was completely error free, the chart continues to tell a story that is far from troubling, even if it's not grounds for unabashed excitement. Simply put, new homes continue to sell at a pace that's very close to recent highs (excluding the frenzied moments from 2020 through early 2022). Current levels are also on the higher end of the pre covid range going back to 2016. Bottom line, much like home price appreciation, new home sales have been sideways and boring at relatively strong levels. Full release available from Census Bureau here: https://www.census.gov/construction/nrs/pdf/newressales.pdf
The massive spike and subsequent correction in home price appreciation (mid-2020 through early 2023) generated lots of opinions and concerns about the fate of the housing market. Early on, the fear was that prices were rising too high, too quickly. By mid-2022, the fear was that home prices were en route to a crash that could be reminiscent of the infamous mortgage meltdown and great financial crisis. Of those two fears, only the first was ever going to be valid (i.e. a melt-down style contraction wasn't possible without the other ingredients in place 20 years ago). Prices definitely rose too high, too fast, but let's face it: the average homeowner isn't really scared of their home becoming more valuable. It's only housing economists and first time homebuyers that are truly troubled by runaway prices. Even then, higher prices were a bit of an illusion due to all-time low interest rates. By early 2023, the Case Shiller home price index had dipped well into negative territory, year over year. At the time, we were comfortable reminding our readers that this was a logical byproduct of rapidly rising rates and a much-needed correction from the blistering pace of appreciation seen through early 2022. Two years later and things really couldn't look any more boring, and this week's most recent update to both the major home price indices is just the latest confirmation. Even if we look at the super noisy month-to-month readings, we can still see both indices bouncing around the historically normal mid-point like a well-behaved EKG. Granted, Case Shiller's EKG rhythms are a bit wider than normal, but this is always the more volatile of the two series.
The National Association of Realtors released its Pending Home Sales Index (PHSI) today, which measures home purchase contracts that have been signed, but not yet closed. The index typically correlates with existing home sales in the following month. While January's contract signings were only down 4.6% versus December, that was enough for the index to inch down to the lowest levels since data-keeping began in 2001. “It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months,” said NAR Chief Economist Lawrence Yun. “However, it’s evident that elevated home prices and higher mortgage rates strained affordability.” To be sure, mortgage rates hit their highest recent levels in January but fell short of the levels seen in early 2024. At the time, Pending sales had fallen nearly as low as today's report, thus adding some evidence for the negative impact from higher rates. [thirtyyearmortgagerates] The following bullet points show how each region changed from the previous month (and from the previous year). Northeast +0.3 (-0.5) Midwest -2.0 (-2.7) South -9.2 (-8.8) West -1.2 (-4.5)
Per the latest release from the Mortgage Bankers Association (MBA), both refinance and purchase indices decreased this week. In terms of the change from the previous week, it was the biggest drop so far this year, but not remotely as big as last week of 2024. Here is the refi index in terms of week-over-week change: And here is the exact same data, but expressed in terms of the outright index: If we're just focusing on 2025, the chart above doesn't look too bad for refi demand. But in case anyone needed to be reminded, the farther back one looks into the past, the more sobering the current levels become--even those seen at last year's peak. Purchase activity struggled as well, down 6% weekly, just barely beating the drop seen in the first week of the year in terms of week-over-week change. In outright terms, this brings purchase activity back near the middle of its recent range. The following bullet points offer a few highlights of changes in the % share of total activity for various categories: ● FHA Share increased from 16 to 16.6 ● VA Share decreased from 14.6 to 14.2 ● Refi Share decreased from 40.2 to 38.7
The Census Bureau released its New Residential Construction report this week, frequently referred to by its principal component "housing starts" (a term for the start of the first phase of new home construction). In addition to housing starts, the data also logs building permits as well as completions. There's not always a perfectly linear correlation between the various metrics for a variety of reasons. Some permits never turn into construction, for instance. Sometimes there's a backlog of permits waiting on materials, labor, or weather before construction can begin. In general, building permits remain more even-keeled while housing starts gyrate. The past three reports have been a good example of this. During that time, building permits have barely budged at an annualized pace of 1.49m, 1.48m, and 1.48m in Nov, Dec, and Jan respectively. Meanwhile, housing starts have whipsawed from 1.305m to 1.515m and now back down to 1.366m. Using "millions" as a unit number makes it easy to overlook the fact that we're talking about a swing in this year's national housing availability of a whopping 149k units. But even then, such a swing doesn't necessarily look too troubling in the bigger picture. Housing completions suggest an even lower cause for concern of the trajectory of construction. Regionally, the biggest decline in percentage terms was in the Northeast (-27.6%). But in terms of outright units, the South led the decline with a drop of 207k. Contrast that to the Northeast's unit count only declining by 40k.
The National Association of Homebuilders (NAHB) along with Wells Fargo released the monthly builder confidence index this week, and it came out much weaker than expected. With tariff and immigration news rapidly evolving, it's tempting to conclude that any major changes in homebuilder sentiment would be directly related. For instance, if builders think that building materials could be harder to obtain or more expensive, it generally hits the confidence index. This would be a particularly big problem with something like lumber as the U.S. imports roughly a third of its framing lumber from Canada. While it's easier to agree with this narrative based purely on concepts and words, the actual numbers tell a different story when you see them on a chart. Builder confidence has been strongly locked into what market watchers would call a "consolidation pattern." On charts, this takes the shape of converging lines marking recent highs and lows. Some technical analysts (market watchers who infer significance or movement cues based on chart patterns) believe that momentum will continue in the direction of a breakout--something that inevitably must happen this year as far as this consolidation is concerned. Just as often, however, a consolidation breakout can give way to broadly sideways momentum until underlying economic fundamentals change in a big way. In the current case, it would be hard to argue that elevated interest rates are anything but the key factor depressing home sales and builder confidence.
In this week's update on mortgage applications from the Mortgage Bankers Association (MBA), purchases continued a modest retreat but refinance demand improved for the 2nd week in a row. This was just barely enough for the Refi index to hit the highest levels since October 2024. The uptick makes sense in light of the mortgage rate situation last week. Rates had been inching slowly to the lowest levels in almost 2 months as of Monday morning. Wednesday brought a a noticeable drop and there wasn't much of a bounce for the rest of the week. As has been and continues to be the case, all of the volatility seen in the past year represents only a fraction of the longer-term range. Here's the same refi index over a longer time frame. The purchase side of the market is typically never as responsive to rates in the short term, and last week was no exception. MBA's purchase app index moved down for the 3rd week in a row, although it's still closer to the top of the recent range. In the bigger picture, purchase applications suffer from the same jarring adjustment experienced across the housing market with the epic rate spike in 2022. Here's a breakdown of this week versus last week in several categories of loans in terms of market share: Refinances 40.2 vs 39.0 FHA Loans 16.0 vs 16.2 VA Loans 14.6 vs 13.3 Survey respondents had 30yr fixed rates at 6.95 with 0.64 points, down slightly from 6.97 in the previous week. Jumbo loans were down to 6.96 from 7.01 and ARM rates moved up to 6.20 from 6.07.
There are two main styles of measurement when it comes to keeping track of mortgage rates: daily and weekly. Sometimes, the differences in methodologies mean that two reputable sources can convey seemingly incongruent conclusions. Other times, both the granular and general data agree. This is one of those times. Whether we're looking at MND's daily averages or MBA's weekly survey, mortgage rates hit their lowest levels in 6 weeks by the end of last week. The drop wasn't immense, but based on today's release of MBA application data, it was enough for a small bump in refinance demand. As is constantly the case over the past several months, the scope of the mid-2024 spike in application activity is more easily understood with the benefit of additional historical context. Purchase applications are never as sensitive to rates over short time horizons. In fact, they moved down a bit last week, but the counterpoint is that the purchase index has been holding near recent highs. Here too, broader context changes the takeaway. Other details from the report: Refinances accounted for 39% of the total vs 37.1% last time FHA loans accounted for 16.2%, down a bit from 16.7% VA loans accounted for 13.3% vs 13.2% MBA recorded 30yr fixed rates at 6.97 for the week with 0.64 discount points Jumbo rates were 7.01 with 0.48 discount points
