The U.S. housing market is under duress.
For weeks now the economic data coming out of the U.S. housing market has been downbeat as yields have surged since the Federal Reserve decided to raise rates.
Soaring home prices and mortgage rates, combined with low supply, have worked to depress the housing market.
U.S. housing starts fell 2% in June from May to a seasonally adjusted annual rate of 1.56 million, according to the Census Bureau.
That’s the lowest reading since September and represents a 6.3% slide from June 2021. The jump in home prices and mortgage rates has limited homebuilding.
As for prices, the median existing-home sales price hit $407,600 in May, topping $400,000 for the first time and soaring 14.8% from a year earlier, according to the National Association of Realtors.
Rates for a 30-year fixed mortgage averaged 5.51% as of July 14, up from 2.88% a year ago, according to Freddie Mac.
“With [mortgage] rates the highest in over a decade, home prices at escalated levels, and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Mortgage Applications Drop
Mortgage applications for the week ending July 15 dipped by 6.3%, the third week in a row, according to the Mortgage Bankers Association.
The culprits: bearish economic outlook, high inflation and a lack of affordability.
“Mortgage applications declined for the third week in a row, reaching the lowest level since 2000,” said Joel Kan, associate vice president of economic and industry forecasting at MBA.
“The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs.”
New U.S. home building activity fell 2% during the week to a seasonally adjusted annual rate of 1.56 million units in June, a nine-month low since September 2021.
Meanwhile the share of loans from the Federal Housing Administration, which subsidizes loans made to low and moderate-income borrowers, rose to 12.4% from 11.7%.
Meanwhile, the refinance index fell 4% week over week to a 22-year low. The purchase index decreased by 7%.
“With most mortgage rates more than two percentage points higher than a year ago, demand for refinances continues to plummet,” Kan said.
The MBA estimates that the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) rose to 5.82%, from the previous week’s 5.74%. Jumbo mortgage loans (greater than $647,200) also increased to 5.31% from 5.25%.
Lack of Housing Affordability
Rising home prices aren't helping matters as the median existing home price rose to a record of $416,000 in June, according to the National Association of Realtors.
The national median home price rose 13.4% year over year and rose from the revised May price of $408,400.
"A combination of higher prices and higher mortgage rates have clearly shifted the dynamics in the housing market,” Lawrence Yun, NAR’s chief economist said, according to the Wall Street Journal. “People who want to buy are simply priced out given the affordability challenges.”
Economists polled by the Journal had expected a 0.9% monthly decline in sales of previously owned homes, which make up the majority of the housing market.
Existing home sales fell to 5.12 million in June, down from 5.41 million in May and well short of the expected 5.35 million.
