Purchase activity perked up in US housing over the last week. That’s good news from an otherwise frozen, forbidding market.
Mortgage rates, you’re reminded, are loitering near their lowest levels in more than a year, but to the extent the rate relief’s succeeded in spurring activity, it’s been mostly refis.
Prices are still setting records — even with real housing wealth falling as annual price growth lags headline inflation — so anything with a six-handle on the financing side remains a heavy lift for the “typical” family.
Rates ticked up over the last two weeks but they’re down ~70bps since May.
If you’re trying to make it on the median household income, trying to buy the median house is an exercise in circle squaring: You make $80,000 a year and you’re trying to buy a Cullinan. It helps that you can stretch out the payments over three decades — soon to be five if “The King Of Debt” has anything to say about it — but… well, circles are famously hard to square.
That’s the context for Wednesday’s MBA update which saw refi activity recede and purchase apps rise. The figure below gives you a sense of how the two indexes have responded to the decline in rates.
Note that on a YoY basis, refis were up almost 150% over the last week versus a 30% YoY gain for the unadjusted purchase index.
“Purchase applications for conventional, FHA and VA loans increased, as potential homebuyers continue to shop around, particularly in markets where inventory has increased and sales price growth has slowed,” MBA VP Joel Kan said Wednesday. “Based on the unadjusted purchase index for the week, this was the strongest start to November since 2022.”
With that out of the way, I’m (unfortunately) compelled to weigh in on Donald Trump’s 50-year mortgage trial balloon which I alluded to above. The idea shares two things in common with almost all Trump ideas: 1) It wasn’t his initially, 2) It’s stupid.
Let’s deal with 2) first. If you took out a 50-year mortgage, it’d take forever and a day to build meaningful equity because of the amortization schedule on a half-century loan. So there’s that. The corollary is that you’re going to pay more interest over the life of the loan — a lot more. So when Trump says, as he did on Fox, “All it means is you pay less per month,” he’s either lying or demonstrating ignorance, and in this case I think it’s more the latter. You would pay less per month. Obviously. But there’s no free lunch. Assuming you live long enough to pay off a 50-year mortgage, that’ll be the most expensive lunch you ever bought.
Now to point 1). This was Bill Pulte’s idea, not Trump’s. And it goes without saying — or at least it certainly should — that if someone whose last name is “Pulte” comes to you with an idea about mortgages, you should consider that idea about as unbiased as a proposal about candy presented by someone whose last name is “Wonka.”
In a truly damning indictment of how susceptible Trump is to pitches that play on his vainglory, Pulte reportedly sold him on the idea by framing it as an opportunity to be remembered as fondly as FDR. To wit, from Politico:
[One] evening, Pulte arrived at President Trump’s Palm Beach Golf Club with a roughly 3-by-5 posterboard in hand. A graphic of former President Franklin Roosevelt appeared below “30-year mortgage” and one of Trump below “50-year mortgage.” The headline was “Great American Presidents.” Roughly 10 minutes later, Trump posted the image to Truth Social, according to [a person] familiar, who was with the president at the time.
That’s terrifying. It’s also sad. Or “SAD!!” as Trump would put it.
Pulte was, of course, the mastermind behind the attempted ouster of Lisa Cook from the Fed board, and according to the same Politico article, a lot of people, including Republicans, have had more than enough of Bill.
One source quoted by the well-connected Dasha Burns said, “The thing that became clear from this latest episode — if it wasn’t already clear — is that Bill Pulte doesn’t know the first fucking thing about how the mortgage markets operate.”
I think I can leave it there. Right? Right.
Ha! I was wondering who had tricked Trump into calling FDR a “Great American President.”
I think Pulte knows how mortgages work. He also knows what sells more houses.
Here is what an AI search said about borrowing $400,000 for 30 vs. 50 years:
It takes 30 years to accumulate $100,000 of equity under a 50 year loan vs. 12-13 years under a 30 year mortgage. Total interest paid is
$542,064 and $1,012,478 for a 30 year and 50 year mortgage, respectively.
“All it means is you pay less per month.”
The assumption that there is a lower payment rests on the assumption that the interest rate for the 30 and 50 year mortgages is the same. That will not be the case.
Trump want the economy to look prosperous under his watch. Borrowing for 50years, borrowing against crypto gypo investments, any ideas to get more houses sold, so the numbers appear greater than Biden’s numbers, he will jump at !
That Wonka line…classic.
I was anticipating we would hear about 40-year mortgages soon enough, as they are common in some other countries, but 50-years was a surprise. Prior to FDR, home loans were typically 5 or 10-year loans. You put 40-50 percent down, made interest only payments, and then had a “balloon payment” of the remaining balance due at the back-end. Interest rates were often variable, and under that system home ownership rates were rather low. The “modern” 15 or 30-year fixed-rate mortgage was a vast improvement.