Housing Beat: Mortgage Rates Flatten As Sun Belt Sees New Boom In Home Building

This week in the housing market, mortgage rates were mostly flat, mortgage application volume was down and the Sun Belt is shining with new single-family home construction.

On The Mortgage Front: Freddie Mac FMCC reported the 30-year fixed-rate mortgage averaged 5.09% as of June 2, down slightly from last week’s 5.10% average. The 15-year fixed-rate mortgage averaged 4.32%, up slightly from last week when it averaged 4.31%. And the 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.04%, up from last week when it averaged 4.20%.

“Mortgage rates continued to inch downward this week but are still significantly higher than last year, affecting affordability and purchase demand,” said Sam Khater, Freddie Mac’s chief economist. “Heading into the summer, the potential homebuyer pool has shrunk, supply is on the rise and the housing market is normalizing. This is welcome news following unprecedented market tightness over the last couple years.”

Ah, but summer is still several weeks away and higher mortgage rates are not generating new home loan volume. The Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of mortgage loan application volume, was down 2.3% for the week ending May 27 compared to the previous week. The seasonally adjusted Purchase Index dipped by 1% from one week earlier and the Refinance Index decreased 5% from the previous week and was 75% below the level of the same week one year ago.

“Mortgage rates fell for the fourth time in five weeks, as concerns of weaker economic growth and the recent stock market sell-off drove Treasury yields lower,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Mortgage applications decreased to its lowest level since December 2018, as the purchase market continues to struggle with supply and affordability challenges.”

Kan noted that last week’s purchase application level was down 14% from one year ago, with most activity focused on larger mortgages.
“Demand is high at the upper end of the market, and supply and affordability challenges are not as detrimental to these borrowers as they are to first-time buyers,” he said.

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On The Home Sales Front: One of the main frustrations facing first-time buyers has been the lack of available inventory. But that’s not to say new homes aren’t being constructed. A data report from Redfin RDFN found Sun Belt metro areas recorded the highest level of new home construction — Austin led the country with 31.1 single-family building permits per 10,000 people in the first quarter, followed by Raleigh, North Carolina (30.7), Jacksonville, Florida (29.2), Nashville (26.6), Charlotte, North Carolina (22.9), Phoenix (22.7), Houston (22.4), Orlando (20.3), Dallas (18.5) and Las Vegas (17.2).

Austin also led the country with the construction of new multifamily properties, with 26.1 multifamily building permits per 10,000 people in the first quarter, followed by Jacksonville (19.9), Salt Lake City (16.7), Orlando (12.7) and Denver (12.6).

“If there had been enough homes at the start of the pandemic, housing costs might not have skyrocketed the way they did over the past two years,” said Redfin Chief Economist Daryl Fairweather. “The government should support homebuilding with things like subsidies and upzoning even as demand pulls back so the housing-supply hole starts to fill in. There still aren’t enough homes to meet the pace of household creation, and we need to be more prepared when demand inevitably picks back up.”

But that raises another question: are the new homes being properly priced or are they overpriced? A new study by researchers at Florida Atlantic University and Florida International University determined four major U.S. housing markets are overvalued by more than 60% while 11 others are overvalued by more than 50%.

Boise, Idaho, led the nation in overpriced housing thanks to an influx of new arrivals during the pandemic who bought up available property for their remote work. The new research reported Boise’s pricing history suggested homes now should cost an average price of $299,202, although the typical buyer is paying $516,548 — which is 72.64% above the area’s long-term pricing trend. Austin followed in the ranking of overpriced markets, where buyers are paying 67.70% more than they should.

“Near-record-low mortgage rates helped fuel demand for housing, especially during the pandemic, and the competition for homes pushed prices higher,” said Dr. Ken H. Johnson, an economist in FAU’s College of Business. “But now the Federal Reserve is raising rates to curtail inflation, and already that’s cooling demand.”