Mortgage report is a frustration for homebuyers

For those of you hoping to buy a home, the latest Mortgage Bankers Association report might be a major source of frustration.

Mortgage applications sank 9.4% last week from two weeks earlier, according to the trade group’s report. Mortgage applications for refinancing tumbled 18% and those for new purchases slid 5%.

On the plus side for potential home buyers, falling mortgage applications mean demand for homes is easing, which could push home prices lower. But on the minus side, a drop in demand last year did nothing to stop home prices from ascending as the inventory of home sales remains tight.

“Markets continued to digest the impact of slowing inflation and potential rate cuts from the Federal Reserve, helping mortgage rates to stay at levels close to the lowest since mid-2023,” said Joel Kan, the association’s deputy chief economist.

Consumer prices rose 3.1% year-on-year in November, down from 3.2% in October. Interest-rate futures prices indicate traders and investors expect the Fed to cut interest rates by at least 1.5 percentage points this year.

And as for mortgage rates, the 30-year fixed rate ended 2023 at 6.76%, more than a percentage point lower than its recent peak of 7.9% in October 2023, according to the MBA.

Rate drop spurs mortgage-market optimism

“The recent decline in rates has given the housing market some cause for optimism going into 2024,” Kan said. “But purchase applications have not yet picked up in response, with the overall level of purchase activity 12% lower than a year ago.”

And to be sure, the inventory shortage — few homes for sale — could improve soon. “The recent strength in new residential construction will continue to help ease inventory shortages in the months in come,” Kan said.

The inventory of unsold existing homes descended 1.7% in November from October to 1.13 million, or the equivalent of 3.5 months’ supply at the current monthly sales pace. Conventional wisdom has it that six months’ supply signals a healthy market.

Turning to the good news on construction, November housing starts soared 14.8% from October and 9.3% from November 2022.

So more homes should be available for potential buyers this year than last. But there’s no certainty that prices will decline, so if you’re buying, proceed cautiously.

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