Housing Beat: Mortgage Rates Creep Down, Inventory Expands And Who Wants A Vacation Home Anymore?

The U.S. housing market closed June with a decline in mortgage rates, a bump-up in pending home sales, a growing number of available properties for sale and an evaporating enthusiasm for vacation homes.

On The Mortgage Front: Freddie Mac FMCC reported the 30-year fixed-rate mortgage averaged 5.70% as of June 30, 2022, down from last week when it averaged 5.81%. The 15-year fixed-rate mortgage averaged 4.83%, down from last week when it averaged 4.92%. And the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.50%, up from last week when it averaged 4.41%.

“The rapid rise in mortgage rates has finally paused, largely due to the countervailing forces of high inflation and the increasing possibility of an economic recession,” said Sam Khater, Freddie Mac’s chief economist. “This pause in rate activity should help the housing market rebalance from the breakneck growth of a seller’s market to a more normal pace of home price appreciation.”

While mortgage rates inched down, home loan application volume inched up. The Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of mortgage loan application volume, was up by 0.7% for the week ending June 24 from the previous week. The Purchase Index recorded a 0.1% uptick and the Refinance Index increased 2% from the previous week.

Joel Kan, MBA’s associate vice president of economic and industry forecasting, stated the “decline in mortgage rates led to a slight increase in refinancing, driven by an uptick in conventional loans. However, refinances are still 80% lower than a year ago and more than 60% below the historical average. Overall purchase activity has weakened in recent months due to the quick jump in mortgage rates, high home prices and growing economic uncertainty.”

Kan added the average purchase loan amount declined to $413,500, down from its $460,000 record peak in March.

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On The Homebuying Front: Earlier this week, the National Association of Realtors (NAR) reported pending home sales were up in May, a reversal from the six-month streak of declines. NAR’s Pending Home Sales Index registered a 0.7% rise in May from April to 99.9 — an index of 100 is equal to the level of contract activity in 2001 — although year-over-year, transactions fell by 13.6%.

“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” said NAR Chief Economist Lawrence Yun. “Contract signings are down sizably from a year ago because of much higher mortgage rates. Trying to balance the housing market by choking off demand via higher mortgage rates is damaging to consumers and the economy. The better way to balance the market is through increased supply, which also helps the broader economy.”

More housing stock appears to be made available, according to a separate data report from Realtor.com, which is operated by News Corp NWSNWSA subsidiary Move, Inc.

Realtor.com reported that the number of homes available to buyers climbed at its fastest yearly pace of all time this month with an 18.7% increase. In June, homes with at least 1,750 square feet accounted for more new listings (54.3%, up from 52.7% in 2021) than relatively smaller homes (45.7%, down from 47.3% in 2021).

“Our June data shows the inventory recovery accelerated, posting the second straight month of active listings growth in nearly three years,” said Danielle Hale, chief economist for Realtor.com. “We expect these improvements to continue, as predicted in our newly-updated 2022 forecast.”

Still, Hale predicted that while increased inventory “will eventually cool the feverish pace of competition, the typical buyer has yet to see meaningful relief from quickly selling homes and record-high asking prices.

"However, a deeper dive into June’s inventory gains by square footage reveals potential opportunities for move-up buyers, as newly-listed homes skewed larger. In other words, this first wave of supply improvements may be particularly opportune for summer sellers looking to upgrade from their starter homes, which could mean more equity to put towards purchasing a bigger property.”

The National Association of Home Builders (NAHB) is arguing that housing inventory expansion could be even greater, but that situation is being stymied by U.S. tariffs on Canadian lumber.

“NAHB is extremely disappointed that the Biden administration is turning a blind eye to America’s housing affordability crisis by refusing to eliminate tariffs on Canadian lumber at the same time it is considering rescinding tariffs on a wide range of Chinese goods to curb inflation,” said Jerry Konter, NAHB’s chairman and a home builder and developer from Savannah, Georgia. “Tariffs act as a tax on American consumers and the lumber tariff is particularly onerous, given that it has contributed to unprecedented lumber price volatility that has sharply raised the cost of housing at a time when housing affordability is already at a more than 10-year low.

“Lumber tariffs affect millions of American homebuyers and homeowners,” Konter added. “If the administration is truly interested in providing U.S. citizens relief from high inflation by removing costly tariffs, it should ensure that Canadian lumber is among the tariffs it targets for elimination.”

And there is one area where property is available but buyers are not plentiful. Redfin RDFN reported demand for vacation homes has fallen below the pre-pandemic baseline for the first time in two years, with mortgage-rate locks for second homes down 4% from before the pandemic in May. That’s down from a revised rate of 3% above pre-pandemic levels a month earlier and 70% above pre-pandemic levels a year earlier.

“Skyrocketing monthly payments, along with higher loan fees, have priced many second-home buyers out of the market,” said Redfin Deputy Chief Economist Taylor Marr. “Many would-be second-home buyers are also deterred by turmoil in the stock markets, high inflation and recession fears, and they can be quicker to pull back from the market because vacation homes aren’t a necessity the way primary homes are. The cooldown in the second-home market is likely to continue as long as mortgage rates are elevated and the stock market is slumping.”

Photo: Paul VanDerWerf / Flickr Creative Commons; color effects by Joshua Clancy Hall

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