Housing bubble ready to pop: Mortgage applications fall under Holy-Moly mortgage rates, slumping stocks, ridiculous house prices

“Recent stock market volatility” gets some of the blame.

By Wolf Richter for WOLF STREET.

Pieces of evidence are lining up in increasing density. The number of potential future home buyers needing a mortgage has been declining for months. Another milestone today: Applications for mortgages to buy a home were down 12% from the previous week and were down 15% from a year ago.

In its report, the Mortgage Bankers Association today added that “potential homebuyers have been deterred by higher rates and deteriorating affordability conditions” – namely the ridiculous spike in home prices over the past 18 months, on top of the rise in previous years, combined with mortgage rates returning to what would still have been very low a few decades ago.

The MBA’s Purchase Mortgage Applications Index plunged to its late 2018 lows. At the time, the Fed had raised interest rates and the QT had pushed mortgage rates above 5%, volumes dried up and prices began to wobble, falling in some areas. markets. But inflation was below the Fed’s target and Trump had Powell keelhauling on a daily basis. Powell collapsed, mortgage rates fell again and volume and prices rose again. Now raging inflation is the dominant economic concern, and the Fed is determined to get it under control (data via Investing.com):

Holy Moly Mortgage Rate.

The average 30-year fixed mortgage rate with conforming balances and 20% down this week has declined a little bit today, according to the MBA, to 5.49%, from the previous week’s 5.53%, both the highest holy-moly mortgage rates since 2009 (data from Investing.com):

Cracking stocks are to blame.

And it’s not just mortgage rates: The MBA added that “general uncertainty about the near-term economic outlook, as well as recent stock market volatility, may cause some households to postpone their home search.”

In this context, “volatility” always means falling stock prices, because no one is complaining about upward volatility and stocks croaking. I mean, not every day, because we’ve had some sharp bear market rallies, but they don’t last long, and then stocks slide to lower lows. It is unnerving for people who have come to expect eternal and easy riches from stocks and have built their whole future on this theory.

If you were to borrow your down payment by taking out a margin loan against your rising stock, you might be in doubt right now, that’s for sure. I mean, look at the sh*t show going on today, with the Nasdaq down 4% right now, subject to change.

Cryptos were not mentioned by the MBA, which is a good thing because they are just gambling tokens. But some of the bigger cryptos have already collapsed to essentially zero. Others are on their way. Bitcoin is down about 58% since November and is down 25% from a year ago.

And that is not confidence inspiring for people who expected to use their crypto gambling winnings to buy a house. Those who got out early made it. And those who believe in HODL (“Hold on for the dear life”), well, they’ll have to keep believing.

Refi applications have collapsed for months

Applications for mortgages to refinance an existing mortgage fell further, after falling year-round amid these holy-moly mortgage rates, with the MBAs Refinance Mortgage Applications Index hitting its lowest point since late 2018.

Cash Out Refi vs. No Cash Out Refi

But there’s a split between cash-out refis, where needy homeowners still eat at the nadir of the home price spike, and no-cash-out refis, where homeowners try to lower their monthly payment by taking out a new mortgage at a lower rate. .

The AEI Housing Center follows this split and uses a different method than the MBA to process mortgage applications.

pay out refills are motivated by the need to take out much of the money from home, and mortgage rates are a secondary problem. So payouts continue, but are down 42% year-over-year to their early 2019 low, according to the AEI’s Housing Center.

The share of cash-out refi mortgages insured by the FHA — including subprime and low-deposit mortgages — rose to 27% of all cash-out refi mortgages, up from 10% at the start of the year .

“This indicates that higher-risk borrowers are experiencing more stress due to inflation — not a healthy trend,” the AEI said. Are they doing cash-out refis with holy-moly mortgage rates to pay for inflation? Oh boy… Thank goodness only the taxpayers are on the hook here from the get-go, not the banks, meaning the Fed can rip this one.

No top up payouts are motivated by lower mortgage rates to lower mortgage payments and save money every month. And those lower mortgage rates are now a thing of the past. In the current reporting week, no cash-out refis have collapsed at 93% year-over-year.

This means the end of monthly savings from lower mortgage payments, and the end of those savings spent on goods and services, kicking out another mainstay of consumer spending.

Do you enjoy reading WOLF STREET and want to support it? Using adblockers – I totally understand why – but do you want to support the site? You can donate. I really appreciate it. Click on the beer and iced tea mug to see how:

Would you like to be notified by email when WOLF STREET publishes a new article? Register here.

Leave a Reply