Housing Beat: Mortgage Rates Up Again, Homes With High Fire Risks Sell For More

This week in the housing market, mortgage rates resumed their upward movement, mortgage applications continued their downward movement and industry experts weighed in on the arrival of the next recession.

On The Mortgage Front: Federal Home Loan Mortgage Corp - Freddie Mac FMCC reported the 30-year fixed-rate mortgage averaged 5.23% as of June 9, up from last week when it averaged 5.09%. The 15-year fixed-rate mortgage averaged 4.38%, up from last week when it averaged 4.32%. And the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.12%, up from last week when it averaged 4.04%.

“After little movement the last few weeks, mortgage rates rose again on the back of increased economic activity and incoming inflation data,” said Sam Khater, Freddie Mac’s chief economist. “The housing market is incredibly rate-sensitive, so as mortgage rates increase suddenly, demand again is pulling back.

“The material decline in purchase activity, combined with the rising supply of homes for sale, will cause a deceleration in price growth to more normal levels, providing some relief for buyers still interested in purchasing a home,” Khater added

The Mortgage Bankers Association (MBA) reported that its Market Composite Index, a measure of mortgage loan application volume, was down last week by 6.5% from one week earlier. The Purchase Index was down by 7% and the Refinance Index decreased 6% — the latter was also 21% lower than the same week one year ago.

“Weakness in both purchase and refinance applications pushed the market index down to its lowest level in 22 years,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, who also noted the “purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months. These worsening affordability challenges have been particularly hard on prospective first-time buyers.”

On The Homebuying Front: While home prices continue to break records, Zillow Group Inc Z ZG polled 100 industry experts to determine if this environment is turning into a new housing bubble.

According to Zillow, 60% of the respondents said they do not believe the U.S. housing market is currently in a bubble, compared to 32% who said a bubble existed and 8% who were not sure.

"Americans have seen home values rise at record rates over the past few years. But although a recession is looking more and more likely, the housing market today is a far different beast than what we saw in the mid-2000s," said Zillow economist Nicole Bachaud. "Unlike in 2006, this market is underpinned by strong fundamentals and has been built on mortgages with sound credit, factors that won't change in the near term."

Zillow also asked the 100 experts about the potential for a new recession. The majority of respondents (45%) expected the next U.S. recession to begin in 2023, while 30% expected a recession this year, 8% predicted it would come in 2024 and 17% saw it happening beyond 2024.

"Although the Great Recession was triggered by a housing crash, it's an outlier in the grand history of recessions, which have often strengthened investment in housing due to its relative stability as an asset," Bachaud said.

See Also: Analysis: Kohl's Downhill Road To Seeking A Buyer

The Equal Opportunity Front: Federal National Mortgage Association - Fannie Mae FNMA released a three-year Equitable Housing Finance Plan designed to address continuing affordability and accessibility challenges faced by Black renters and homeowners.

According to Fannie Mae, the new plan focuses on three key areas: preparing Black consumers early through credit building and financial education, identifying and removing the “unnecessary obstacles” that prevent Black Americans from gaining a residence and enhancing sustainable homeownership so renters and homeowners can withstand disruptions or temporary hardships that would force their removal from their residences.

"Our Equitable Housing Finance Plan lays the groundwork to meaningfully address housing barriers faced by Black renters and homeowners," said David C. Benson, president and interim CEO at Fannie Mae. "We want to knock down these barriers, one by one, doing our part to undo the legacy of discriminatory practices that perpetuate racial housing gaps in America. The plan is a solid step toward this goal and a milestone in our work to make housing stronger, fairer, and more sustainable for the people and communities we serve."

On The Fire Risk Front: When it comes to buying a home, it appears that prices are greater in markets with a higher risk of fires.

New data from Redfin Corp RDFN determined the median sale price of homes with higher fire risks was $550,500 in April, compared with $431,300 for homes with low risks, a 27.6% difference.

Much of this is due to location and property size. Redfin noted homes with a higher fire-risk tend to be either larger and/or located in pricey West Coast metros, including many suburban and rural areas that saw a greater migration of new residents during the COVID-19 pandemic. As a result, the median sale price of high-risk homes was up 51.7% in April from two years earlier, while the median sale price of low-risk homes increased by 40.9%.

“Suburban homes tend to be more expensive because they’re large, and demand for large homes skyrocketed during the pandemic as Americans sought respite from crowded city life,” said Redfin Senior Economist Sheharyar Bokhari. “Pandemic buyers also hunted for deals due to surging home prices, and while fire-prone homes aren’t cheaper on average, buyers may feel they’re getting more bang for their buck because they’re getting more space. And for some pandemic buyers, the fire-prone home they bought in suburbia was actually cheaper than their last home because they were relocating from somewhere like San Francisco or Seattle.”

Photo: Schäferle from Pixabay