NEW YORK, NOVEMBER 26, 2024: S&P Dow Jones Indices (S&P DJI) today released the September 2024 results for the S&P CoreLogic Case-Shiller Indices. The leading measure of U.S. home prices recorded a 3.9% annual gain in September 2024, a slight deceleration from the previous annual gains in 2024.
YEAR-OVER-YEAR The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.9% annual return for September, down from a 4.3% annual gain in the previous month. The 10-City Composite saw an annual increase of 5.2%, down from a 6.0% annual increase in the previous month. The 20-City Composite posted a year-over-year increase of 4.6%, dropping from a 5.2% increase in the previous month. New York again reported the highest annual gain among the 20 cities with a 7.5% increase in September, followed by Cleveland and Chicago with annual increases of 7.1% and 6.9%, respectively. Denver posted the smallest year-over-year growth with 0.2%.
Table 2 below summarizes the results for September 2024. Cleveland and New York top 7% YoY.
…but in context, that shift up to 3.96mm SAAR homes sold is nothing…
Source: Bloomberg
High borrowing costs have led to a shortage of previously owned homes on the market, discouraging many would-be home sellers from listing their properties for sale and having to part with their current low financing costs.
“Additional job gains and continued economic growth appear assured, resulting in growing housing demand,” NAR Chief Economist Lawrence Yun said in a prepared statement.
“While mortgage rates remain elevated, they are expected to stabilize.”
Last month, the inventory of available homes edged up 0.7% to 1.37 million, continuing to trend higher although well below pre-pandemic levels.
Despite the weakness in sales, tight inventory is keeping prices elevated, yielding one of the least affordable housing markets on record. The median sale price last month increased 4% from a year earlier to $407,200, the highest ever for any October, the NAR figures show.
Contract signings rose in all four US regions, led by a 6.7% jump in the Midwest.
Sales of single-family homes increased 3.5% in October; purchases of condominiums and co-ops were up 2.7%
Finally, while that’s all very exciting – a scintilla of growth off almost record lows – the fecal matter is about to strike the rotating object as rising mortgage rates lagged impact threatens…
Source: Bloomberg
In October, 59% of homes sold were on the market for less than a month, compared with 57% in September, and 19% sold above the list price. Properties remained on the market for 29 days on average, compared with 28 days in the previous month. First-time buyers made up 27% of purchases, still historically low.
Fortunately, the Biden/Harris administration is winding down. On the mortgage side, the mortgage market is already gone under Biden/Harris where mortgage purchase applications are down a whopping 60%.
Mortgage applications increased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 15, 2024.
The Market Composite Index, a measure of mortgage loan application volume, increased 1.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 1 percent compared with the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 1 percent lower than the same week one year ago. And down -60% under Biden/Harris.
The Refinance Index increased 2 percent from the previous week and was 43 percent higher than the same week one year ago.
Slowing economy, rising rates, too expensive housing. Not a good sign for the mortgage market.
A recent paper by Michael Stegman, Ted Tozer and Richard Green reminds me of The Who’s song “Won’t Get Fooled Again.” Except that apparently Stegman, Tozer and Green did get fooled again.
I remember testifying in the House of Representatives in Washington DC on the financial crisis and housing markets. I pointed out that low down payment mortgages lending to households with low credit scores was very dangerous. I had the data and presented it to the House committee on financial services.
The problem with Stegman et al’s paper is that it ignores The Federal Reserve and Federal spending. After the financial crisis of 2008 when housing prices declined (especially in bubble states like Arizona, Nevada and Florida), Berananke and Yellen adopted a zero interest rate policy that resulted in housing prices rising again. Then we have Powell’s lowering of rates to near-zero following the Covid outbreak and the insane level of Federal spending that ensued helping to drive housing prices to dangerous bubble levels. Making first time homeowner purchases almost impossible.
So, like the 2000s, the pursuit of homeownership will lead to insance policy proposals. If nothing else, the Stegman et al proposal will lead to MORE inflation in housing prices and set the stage for a housing bubble burst of epic proportions.
Apparently, Stegman et al DID get fooled again. Or they just don’t care.
The Market Composite Index, a measure of mortgage loan application volume, decreased 10.8 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 12 percent compared with the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. The unadjusted Purchase Index decreased 7 percent compared with the previous week and was 2 percent higher than the same week one year ago.
The Refinance Index decreased 19 percent from the previous week and was 48 percent higher than the same week one year ago.
“Ten-year Treasury rates remain volatile and continue to put upward pressure on mortgage rates. The 30-year fixed rate last week increased to 6.81 percent, the highest level since July,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Applications decreased for the sixth consecutive week, with purchase activity falling to its lowest level since mid-August and refinance activity declining to the lowest level since May. The average loan size on a refinance application dropped below $300,000, as borrowers with larger loans tend to be more sensitive to any given changes in mortgage rates.”
The refinance share of mortgage activity decreased to 39.9 percent of total applications from 43.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.0 percent of total applications.
The FHA share of total applications decreased to 15.5 percent from 16.4 percent the week prior. The VA share of total applications decreased to 12.5 percent from 14.6 percent the week prior. The USDA share of total applications increased to 0.5 percent from 0.4 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 6.81 percent from 6.73 percent, with points decreasing to 0.68 from 0.69 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $766,550) increased to 6.98 percent from 6.77 percent, with points increasing to 0.65 from 0.49 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 6.75 percent from 6.55 percent, with points decreasing to 0.87 from 0.94 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 6.21 percent from 6.27 percent, with points decreasing to 0.55 from 0.77 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 5/1 ARMs decreased to 6.05 percent from 6.20 percent, with points increasing to 0.84 from 0.59 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The bond market is reacting to the election of Trump with a clear Bear Steepening.
Bear steepening happens when yields move up across tenors, but long-end yields move up even faster than short-end yields.
This isn’t going to help mortgage applications due to lowering rates.
The office sector of commercial real estate has been in a depression for about two years, with prices of older office towers plunging by 50%, 60%, or 70% from their last transaction, and sometimes even more, with some office towers selling for land value, with the building by itself being worth next to nothing even in Manhattan.
Landlords of office buildings are having trouble collecting enough in rent to even pay the interest on their loans, and they’re having trouble or are finding it impossible to refinance a maturing loan, and so many of them have stopped making interest payments on their mortgages, and delinquencies continue to spike.
The delinquency rate of office mortgages backing commercial mortgage-backed securities (CMBS) spiked to 9.4% in October, up a full percentage point from September, and the highest since the worst months of the meltdown that followed the Financial Crisis. The delinquency rate has doubled since June 2023 (4.5%), according to data by Trepp, which tracks and analyzes CMBS.
Office CRE fund managers have spread the rumor that office CRE has bottomed out, but the CMBS delinquency rate doesn’t agree with this bottomed-out scenario; it’s aggressively spiking.
Three months ago, the delinquency rate surpassed the surge in delinquencies that followed the American Oil Bust from 2014 through 2016, when hundreds of companies in the US oil-and-gas sector filed for bankruptcy as the price of oil had collapsed due to overproduction, which devastated the Houston office market in 2016.
But now there’s a structural problem that won’t easily go away with the price of oil: A huge office glut has emerged after years of overbuilding and industry hype about the “office shortage” that led big companies to hog office space as soon as it came on the market with the hope they’d grow into it. However, during the pandemic, companies realized that they don’t need all this office space, and vast portions of it sits there vacant and for lease, with vacancy rates in the 25% to 36% range in the biggest markets.
Mortgages are considered delinquent by Trepp when the borrower fails to make the interest payment after the 30-day grace period. A mortgage is not considered delinquent here if the borrower continues to make the interest payment but fails to pay off the mortgage when it matures. This kind of repayment default, while the borrower is current on interest, would be on top of the delinquency rate here.
Loans are pulled off the delinquency list if the interest gets paid, or if the loan is resolved through a foreclosure sale, generally involving big losses for the CMBS holders, or if a deal gets worked out between landlord and the special servicer that represents the CMBS holders, such as the mortgage being restructured or modified and extended.
Survive till 2025 has been the motto. But that might not work either. The Fed has cut its policy rate by 50 basis points in September and is likely to cut more but in smaller increments. Many CRE loans are floating-rate loans that adjust to a short-term rate (SOFR), and short-term rates move largely with the Fed’s policy rates. And floating-rate loans will have lower interest rates as the Fed cuts.
Long-term rates, including fixed-rate mortgage rates have risen sharply since the Fed started cutting rates, so that option isn’t appealing.
So the hope in the CRE industry is that rate cuts will be steep and many, thereby reducing floating-rate interest payments, making it easier for landlords to meet them. And so the prescription was: Survive till 2025, when interest rates would be, they hope, far lower than they were.
But rate cuts will do nothing to address the structural issues that office CRE faces. The landlord of a nearly empty older office tower isn’t going to be able to make the interest payment even at a lower rate when the tower is largely vacant.
And these older office towers face the brunt of the vacancy rates, amid a flight to quality now feasible because of vacancies even at the latest and greatest properties. And there are a lot of these older office towers around that have been refinanced at very high valuations in the years before the pandemic, but whose valuations have now plunged by 50%, 60%, or 70%, and they have become a nightmare for lenders and CMBS holders.
Mortgage applications were essentially flat last week as rates increased for the fourth time in five weeks, driven by bond market volatility in advance of the presidential election and the next FOMC meeting. The 30-year fixed rate, at 6.73 percent, was at its highest level since July 2024.
WASHINGTON, D.C. (October 30, 2024) — Mortgage applications decreased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending October 25, 2024.
The Market Composite Index, a measure of mortgage loan application volume, decreased 0.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 1 percent compared with the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 4 percent compared with the previous week and was 10 percent higher than the same week one year ago.
The Refinance Index decreased 6 percent from the previous week and was 84 percent higher than the same week one year ago.
Total sales SAAR dropped to 3.84mm, the lowest since 2010…
Source: Bloomberg
Even with the weaker September sales figures, “factors usually associated with higher home sales are developing,” Lawrence Yun, NAR chief economist, said in his ubiquitously optimistic statement.
“There are more inventory choices for consumers, lower mortgage rates than a year ago and continued job additions to the economy.”
First-time buyers made up 26% of purchases, matching an all-time low.
Some 1.39 million homes were for sale in September, up 23% from a year earlier, the NAR report showed. The supply of homes still remains below pre-pandemic levels.
At the current sales pace, available inventory would last 4.3 months, the longest in more than four years.
The median sales price rose 3% in September from a year ago to $404,500.
Around the country, previously owned home sales dropped in three of four regions, including a 1.7% decline in the South to the slowest pace since the start of 2012.
Closings fell 2.2% in the Midwest to a 13-year low, and 4.2% in the Northeast. Sales rose 4.1% in the West, driven by California and Arizona.
While the short-term (lagged) may bring an improvement in existing home sales (based on the lagged impact of declining mortgage rates), as the chart below shows, since The Fed unleashed its rate0cutting cycle, mortgage rates have risen aggressively once again…
Source: Bloomberg
…not a good sign for the housing market’s affordability.
However, inventory problems could persist since “84 percent of mortgaged homes have a rate below 6%, so the number of sellers that would be financially incentivized to sell would remain limited,” Odeta Kushi, deputy chief economist at title insurance giant First American Financial Corp. said in the report.
I would like to see Kamala Harris explain why mortgage purchase applications are down -60% under Biden/Harris Presidency. Other than a word salad answer. Or Cottage Cheese.
Mortgage applications decreased 17.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending October 11, 2024.
The Market Composite Index, a measure of mortgage loan application volume, decreased 17.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 17 percent compared with the previous week. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The unadjusted Purchase Index decreased 7 percent compared with the previous week and was7 percent higher than the same week one year ago.
The Refinance Index decreased 26 percent from the previous week and was 111 percent higher than the same week one year ago.
Housing prices are up 34.2% under Biden/Harris while mortgage rates are up 138.6%.
Mortgage applications decreased 3.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending July 26, 2024.
The Market Composite Index, a measure of mortgage loan application volume, decreased 3.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 14 percent lower than the same week one year ago.
Note the decline in mortgage purchase demand after Biden/Harris were sworn into office in Janaury 2021.
The Refinance Index decreased 7 percent from the previous week and was 32 percent higher than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) remained unchanged at 6.82 percent, with points increasing to 0.62 from 0.59 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
Because of rising rates under Biden/Harris economic policies, mortgage refinancing demand has gotten crushed.
We are in the latter half of the year, so seasonalility will kill off purchase mortgage demand compared to the Spring and early Summer.
Confounded Interest - Anthony B. Sanders 
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