The rate America’s legions of frustrated renters would hypothetically pay to finance homes that’ve shot up 30% or more in less than half a decade fell again over the last week, according to Wednesday’s update from the MBA.
That’s the good news. The bad news is that at 6.50%, they still look entirely onerous to younger American families who don’t remember the last time money wasn’t free. And rates are still far too high to facilitate a wholesale thawing of a market that remains largely frozen.
The four basis point decline on the MBA’s 30-year fixed rate was the third straight. Rates haven’t increased on a week-to-week basis since the beginning of July, and they’ve either fallen or been flat in 10 of the last 11 weeks.
As the figure shows, we’re now more than three-quarters of a point off the 2024 highs and 140bps below levels seen in late October, when rates topped out near 8% as Treasury yields peaked for the cycle.
You might recall that refi activity surged earlier this month on the back of the sharp decline in rates. The MBA’s refi gauge fell back in the latest update, albeit to levels that still count as “high” by the anomalous standards of the current environment. Purchase activity fell 5%.
The fireworks across the US rates complex earlier this month were more noise than signal. The market remains in a kind of stasis, as buyers await more inventory on the resale side and builders struggle with high inventories and crimped margins.
“Both mortgage rates and mortgage applications have now stabilized after a few weeks of financial market volatility,” MBA VP Joel Kan said Wednesday, adding that, “Yes, rates are lower, but they’re still 6.5%, which is not low for those borrowers out there with sub-five rates.”
Right. And that’s a lot of borrowers, by the way. For anyone who missed it last month, the figure below is well worth a look.
The share of homeowners in America with six-handle rates was just 13% headed into this year. And that’s after nearly doubling from 2021. More than one in five mortgages sports a two-handle.
Although the resale supply picture’s improving, it’s going to be quite a while before the market returns to anything that looks like normal. Indeed, “normal” may prove elusive. I think it’s entirely fair to say the pandemic experience has forever altered the US housing market.
Luxury’s fine, in case you were wondering. As is luxury’s wont. Late Tuesday, Toll Brothers lifted the low-end of its full-year deliveries guidance to 10,650 from 10,400 and tipped better margins. CEO Doug Yearley said demand should be “solid” for the balance of the year and into 2025. “With mortgage rates trending lower, favorable demographics and continued imbalance in the supply and demand of homes for sale, we are optimistic,” he said.
Of course, if you’re buying from Toll, you’re probably doing ok financially. Even a “cheap” Toll home in one of the company’s pre-planned communities will run you $600,000 or so, and that’s in inexpensive locales. If you’re Toll shopping, you’re probably insulated from the harsher of Main Street’s many harsh realities.
Here’s a fun statistic: The share of US homes worth a million or more is now almost 9%, according to a new Redfin analysis. That’s the highest share ever and, as Dana Anderson noted, it’s “more than double the 4% share before the pandemic.”
At that rate, damn near everybody’s going to need a jumbo by 2030.
Those who are waiting on the sidelines to purchase a home (renters) are not only waiting for mortgage rates to come down further, but they are also going to wait for prices to decline- which there is a reasonable chance of happening as more and more existing homeowners decide to sell.
Therefore, there may not be a rush for first time homebuyers to buy homes, even if mortgage rates start with a 5. It is reasonable to think that waiting will result in lower home prices.
In the meantime, a “rent vs. buy” cost analysis decidedly favors renting – at least in CA, where my adult children live. As an aside, CA is going to have to address the inequity of how real estate taxes are handled (Proposition 13) or the younger generations will be resentful that they are shouldering a disproportionate burden of real estate taxes.
Why are people waiting to sell if they are not planning to buy?
And if they are planning to buy, how does them selling free up housing stock?!
I think prices head higher as rates come down. Until we see a surge in new builds, which lower rates will help but that takes time, I don’t see how the housing ‘deadlock’ is solved.
I’m a (fairly recent) California homeowner, and I hate prop 13 with a passion. It’s a massive transfer of wealth from younger people to older people, but it’s in the self-interest of existing owners to keep the status quo so at best we have to keep chipping away at it. Frankly, the combination of prop 13 and local zoning laws massively distorts California’s real estate market, but defenders always trot out the tired old trope of kicking granny out of her house because she won’t be able to afford property taxes. Never mind the million dollars of equity granny is sitting on while paying $1,000 year in property taxes while the young neighbor next door is paying 10x that and was barely able to scrape together a downpayment because granny pulled up the ladder behind her.
What really fascinates me about this situation is the utter silence on the gigantic windfall that California will collect if nothing changes. At some point, the revenues (from real estate tax collections) will far exceed the costs.
I can’t wait to ReFi my 5 handle
If supply and demand increase simultaneously, not that they would necessarily increase by the same amount, then prices would move mostly sideways from where they are now, no? Mortgage rates may become cheaper, but houses would likely not. Of course, a meaningful recession could change everything.