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Stagnation Trolls the Housing Market

Phil Hall
Jul 14, 2016
The latest housing market data is pointing to a very serious slowdown, at least in the short-term

The latest housing market data is pointing to a very serious slowdown, at least in the short-term.

Freddie Mac’s new Primary Mortgage Market Survey (PMMS) showed the barest of activity among fixed mortgage rates. The 30-year fixed-rate mortgage (FRM) averaged 3.42 percent for the week ending July 14, up a scant 0.01 percent from last week’s average of 3.41 percent and far below last year’s 4.09 percent average. The 15-year FRM this week averaged 2.72 percent, down from last week when it averaged 2.74 percent—one year ago, this product averaged 3.25 percent. And the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.76 percent this week, up from last week when it averaged 2.68 percent but below the 2.96 percent average from last year.

Sean Becketti, chief economist at Freddie Mac, called on Charles Dickens to explain what was going wrong.

“We describe the last few weeks as A Tale of Two Rates,” Becketti said. “Immediately following the Brexit vote, U.S. Treasury yields plummeted to all-time lows. This week, markets stabilized and the 10-year Treasury yield rebounded sharply. In contrast, the 30-year mortgage rate declined after the Brexit vote, but only by half as much as the 10-year Treasury yield. This week, the 30-year fixed rate barely budged, rising just one basis point to 3.42 percent. This pattern suggests that mortgage rates are likely to remain low throughout the summer.”

Separately, Freddie Mac’s Outlook for July blamed Chinese economic tumult and Brexit has playing a major role in driving down mortgage rates. The report forecast the refinance share of originations to rise to 49 percent for 2016, eight percentage points above the level published in last month's forecast. Freddie Mac also predicted house price appreciations for 2016 will remain at the previously published five percent level and will decline to four percent next year.

In other data developments, the new Mortgage Bankers Association (MBA) Builder Application Survey determined that mortgage applications for new home purchases decreased by 0.2 percent from May to June, with new single-family home sales at a seasonally adjusted annual rate of 530,000 units.

“Thus far in 2016, average loan sizes for new homes have been higher than for the same period in 2015, but that gap has recently been declining,” said Lynn Fisher, MBA’s vice president of research and economics. “The three-month moving average loan size was $326,480 in June relative to a series high of $329,119 in February and just over two percent higher than June a year ago. On a year over year basis, our June estimate of 530,000 new home sales was up seven percent.”

But there was one area where stagnation did not take root: RealtyTrac’s Midyear 2016 U.S. Foreclosure Market Report found a total of 533,813 properties with foreclosure filings in the first half of this year, down 20 percent from the previous six months and down 11 percent from the first six months of 2015. However, 19 states and five of the top 20 largest metro areas posted year-over-year increases in foreclosure activity in the first half of 2016. But Daren Blomquist, senior vice president at RealtyTrac, was not bothered by that upward activity.

“Although there are some local outliers, the downward foreclosure trend continued in the first half of 2016 in most markets nationwide,” said Blomquist. “While U.S. foreclosure activity is still above its pre-recession levels, many of the states hit hardest by the housing crisis have now dropped below pre-recession foreclosure activity levels. With some exceptions, states with foreclosure activity continuing to run above pre-recession levels tend to be those with protracted foreclosure timelines still working through legacy distress from the last housing bust.”

RealtyTrac also observed that there were 280,989 properties with foreclosure filings in the second quarter of this year, a three percent drop from the first quarter and an 18 percent year-over-year decline. The second quarter’s saw the lowest quarterly level since the fourth quarter of 2006. And last month saw 94,469 properties with a foreclosure, down six percent from May and down 19 percent from June 2015. Last month marked the lowest monthly level since July 2006.

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