Housing bubble prepares to burst: Mortgage applications for home purchases hit record low, ‘bad time to buy’ hits record high amid sky-high prices, mortgage rates soar

Mortgage refinance applications have plummeted to the lowest since 2000.

The situation is only getting worse: Mortgage applications for buying a home fell 7% during the week and 21% compared to a year ago, reported today the Mortgage Bankers Association. An indicator of future home sales: potential buyers are trying to get pre-approved for a mortgage, lock in a mortgage rate, and then start looking for a home.

Mortgage rates have skyrocketed this year and house prices have skyrocketed for years to ridiculous levels, forcing layers upon layers of would-be buyers to abandon the market, amid ‘worsening challenges of accessibility”, as the MBA called it. And those home buying inquiries hit the lowest point since the depth of lockdown in April 2020 (data via Investing.com):

The MBA’s Buy Mortgage Demand Index has now fallen below late 2018 lows. By November 2018, the Fed had been raising rates for years (slowly), and its QT was in full swing, and mortgage rates had risen slightly above 5%, which was enough to start shaking the housing market. The volume of home sales slowed, prices started to fall in some markets and stocks sold off. But with inflation below the Fed’s target and with Trump, who had taken possession of the Dow Jones, constantly throwing darts at Powell, the Fed signaled in December 2018 that it would back down, and instantly mortgage rates started to drop, and volume and prices took off again.

Today, runaway inflation is the number one economic problem, and the Fed is pursuing it, with the support of the White House, and so this problem in the housing market is going to have to play out.

Holy Moly Mortgage Rates.

The average 30-year fixed mortgage rate with conforming balances and 20% down rose to 5.40% this week, according to the MBA today, after being in that 5.4% range, plus or minus a little , since the end of April, the highest since 2009.

I call them Holy-moly mortgage rates because that’s the reaction you get when you apply that rate to calculate a mortgage payment for a home at current prices, then accidentally look at the resulting mortgage payment (data via Investing. com):

“Bad time to buy a house.”

Turns out sky-high house prices to be financed with saint-moly mortgage rates, along with uncertainty about the economy, falling stock prices and inflation eating everyone’s lunch is a mix toxic to home buyers.

The percentage of people who said it was a “bad time to buy” a home jumped to 79%, another high in data dating back to 2010, according to Fannie Mae. National Housing Survey for May. Sentiment has deteriorated since February 2021:

“Consumer expectations that their personal financial situation will worsen over the next year hit an all-time high in the May survey, and they expressed greater concern about job security,” according to Fannie Mae’s report.

“These results suggest to us that rising mortgage rates, high house prices and inflation will likely continue to squeeze potential buyers – as well as potential sellers with lower and locked-in mortgage rates – out of the market, which confirms our forecast that home sales will slow significantly for the remainder of this year and next,” Fannie Mae said.

The slump in stock prices continues to be blamed.

The stock market is in the news every day. Only a small percentage of Americans own a significant amount of stock, but that doesn’t matter. The stock market declines, with many high-flying stocks plunging 70% or 80% or even 90% since February 2021, have rattled a lot of nerves. This is partly why Fannie Mae pointed out that “consumer expectations that their personal financial situation will worsen over the next year have reached an all-time high.”

The MBA also previously singled out financial markets as one of the reasons for the fall in purchase mortgage applications.

In the tech and social media sector, sharp declines in stock prices have now triggered the first hiring freezes and a few layoffs. And that too – just the idea that nirvana is somehow over – rattles some people.

Big increases in stock portfolios, employer stock options or cryptos have empowered potential home buyers and many to borrow against their portfolios for down payments. This option has disappeared or seems very fragile for many.

Refi applications have collapsed to the lowest since 2000.

Mortgage applications to refinance an existing mortgage fell another 6% for the week and collapsed 75% from a year ago, the lowest level since 2000, according to the MBA Mortgage Refinance Demand Index. The MBA obtains this data from a weekly survey of mortgage bankers.

With these Holy-moly mortgage rates, pretty much the only reason to refinance is to squeeze money out of the house via a withdrawal refi (data via Investing.com):

Cash-Out Refi Mortgage Applications.

According to AEI Residential Center, which tracks mortgage applications by the number of rate locks, no-cash refi applications have collapsed 92% from a year ago. But cash-out refi requests are primarily driven by a desire to extract cash from a home, with mortgage rates being a secondary issue – and so they continue at a slower pace.

Cashing in refi requests in the week to May 30 (black line) fell 42% from the same week in 2021 and stabilized around 2019 levels:

A cash refi provides a large lump sum for the homeowner to spend on everything from cars to home improvement projects. They are also used to pay off expensive debts, such as credit cards, so that these credit cards can then be used for other purchases. The fall in refi cash-out reduces the availability of these lump sums, and therefore reduces the stimulus to the economy they provide.

Cashless refi mortgages at lower mortgage rates also stimulate consumer spending, as the lower rates reduce payments which then leave a little more each month to spend on other things. But soaring mortgage rates and the subsequent 92% collapse in no-cash mortgage applications put an end to this program.

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