Buyers strike? Mortgage applications drop 8% below 2019 as homebuyers question ‘raging fad’

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First effect of the Fed’s MBS tap-talk: Mortgage rates have stagnated since the end of April even as long-term Treasury yields have fallen.

By Wolf Richter for WOLF STREET.

The evidence has been piling up for months in bits and pieces: While investors still have a crush on this real estate market, potential buyers who need a mortgage and those who want to live in the home they are considering buying have doubts, as evidenced by the sharp drop in sales of existing and new homes even as inventories for sale rose for the third month in a row and new listings rolled off the woods.

So here’s the last piece of evidence: Demand from buyers who need a mortgage to finance a home purchase has been down for months and in the week ended July 2 it has dropped further. and is now down 14% from the same week in 2020 and down. 8% compared to the same week in 2019, according to the Mortgage Bankers Association this morning. Mortgage applications are now in the lower end of the range in 2019. The entire pandemic boom has now been settled, plus some (data via Investing.com):

Mortgage applications to refinance mortgages in the week to July 2 fell to the lowest level since February 2020, after also wiping out the entire pandemic peak, despite mortgage rates well below that. they were a year ago.

Refi mortgages go through boom and bust cycles based on mortgage interest rates, with lower than before mortgage rates sparking a refi boom and higher than before mortgage rates putting the brakes on refi .

Thus, refi requests during the week through July 2 remained 55% higher than the same week in 2019, when mortgage rates were one percentage point higher than today; and refi requests were more than double the very low levels of 2018, when mortgage rates hit 5%:

Can you imagine what this immensely overvalued real estate market would look like with mortgage rates at 5%, barely at the rate of CPI inflation? Me neither.

The average interest rate on 30-year fixed-rate mortgages with compliant balances and a 20% down payment was 3.15% during the week ended July 2, according to the MBA today. The rate has fallen by around 20 basis points since the recent high in late March and has remained in the same narrow range since late April:

Interestingly, mortgage rates fell 20 basis points from their recent high in late March, while the 10-year Treasury yield fell 40 basis points over the same period, widening the gap between them.

There is now consistent progressive rhetoric from the Fed, including ideas about reducing its purchases of MBS sooner or faster than cutting its purchases of Treasuries. Several Fed governors have now publicly expressed concern about the housing bubble, the involvement of investors in the housing bubble, and the Fed providing fuel to the housing bubble.

The first effects of this Fed talk about decreasing MBS purchases may already be felt in the widening of the spread between the 10-year rate and mortgage rates – maybe that’s what we are doing. let’s look here.

Discovery of prices versus rents in uncertain times. Lily… Is it the reversal of falls and peaks in rents triggered by the exodus? Mmmm-maybe

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