Housing Bubble Ready to Pop

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Mortgage applications to purchase a home drop to lockdown lows. “Bad Time to Buy” hits record amid sky-high prices, spiking mortgage rates. refinance mortgage applications collapsed to the lowest since the year 2000.

This just keeps getting worse: Applications for mortgages to purchase a home dropped 7% for the week, and were down 21% from a year ago, the Mortgage Bankers Association reported today. An indicator of future home sales: Potential homebuyers try to get pre-approved for a mortgage, lock in a mortgage rate, and then start house-hunting.

Mortgage rates have soared this year, and home prices have soared for years to ridiculous levels, causing layers and layers of potential buyers to abandon the market, amid “worsening affordability challenges,” as the MBA called it. And these applications to purchase a home hit the lowest point since the depth of the lockdown in April 2020 (data via Investing.com):

The MBA’s Purchase Mortgage Applications Index has now dropped below the lows of late 2018. By November 2018, the Fed had been hiking rates for years (slowly), its QT was in full swing, and mortgage rates had edged above 5%, which was enough to begin shaking up the housing market. Home sales volume slowed, prices began to come down in some markets, and stocks were selling off. But with inflation below the Fed’s target, and with Trump, who’d taken ownership of the Dow, constantly throwing darts at Powell, the Fed signaled in December 2018 that it would cave, and instantly mortgage rates began to fall, and volume and prices took off again.

Today, raging inflation is the #1 economic issue, and the Fed is chasing after it, with backing from the White House, so this issue in the housing market is just going to have to play out.

Holy-Moly Mortgage Rates

The average 30-year fixed mortgage rate with conforming balances and 20% down rose to 5.40% this week, according to the MBA today, having been in this 5.4% range, plus or minus a little, since the end of April, the highest since 2009.

I call them holy-moly mortgage rates because that’s the reaction you get when you apply this rate to figure a mortgage payment for a home at current prices and then accidentally look at the resulting mortgage payment (data via Investing.com):

“Bad time to buy a home.”

Turns out, sky-high home prices to be financed with holy-moly mortgage rates, plus uncertainty about the economy, dropping stock prices, and inflation eating everyone’s lunch make a toxic mix for homebuyers.

The percentage of people who said that now is a “bad time to buy” a home jumped to 79%, another record-worst in the data going back to 2010, according to Fannie Mae’s National Housing Survey for May. Sentiment has been deteriorating since February 2021.

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Continue reading this article at Wolf Street.

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