Spring selling season starts ominously: Mortgage applications to buy homes at lowest since 1995

7% mortgage return possibilities. The jump in activity from a very low level in January has faded.

By wolf richter For wolf street,

Here we go again. Mortgage applications to buy homes fell to their lowest level since 1995, after jumping nearly 30% in January on low mortgage rates and the start of the spring selling season.

Compared to a year ago, there was a 41% drop in purchase mortgage applications. Compared to two years ago, they fell by 44%. It’s from the Mortgage Bankers Association today.

Mortgage applications to buy a home are a leading indicator of where home sales volume will be. January brought much hope to the housing industry as mortgage rates plummeted on Fed-pivot mongering. While activity was still massively down from a year ago, it seemed like it was all over, with mortgage applications to buy homes peaking in early January and then jumping nearly 30% over the next few weeks. Is over. Turns out, that was a false bottom. An inauspicious start to the spring sales season:

After the usually dreary holiday season, when activity tapers off, comes the spring sales season, which kicks off in January and February, including mortgage applications for home purchases in terms of foot traffic and other early measures of buyer interest. goes.

Improvements in January sparked hopes that the spring sales season might actually somehow materialize on the expectation that mortgage rates will soon be below 6%, and back below 5% and back to 3% soon.

But now the whole January thing has blown up with inflation rising again – not that it’s never gone but it’s regressed somewhat – Inflation in services has reached a four-decade highTriggering fears that the Fed might not actually pivot as soon as it did, but instead raise rates The levels that were loudly predicted at the December meetingOr maybe even further, and keep them there for much longer.

And so Treasury yields rose. The 10-year yield is once again close to 4%. Six-month and one-year yields are now above 5% for the first time in 15 years, as the era of interest rate suppression and money-printing comes to an end.

The average 30-year fixed mortgage rate is back to 6.88%, having fallen to 5.99% as of February 2, according to daily measurements by Mortgage News Daily. The weekly measure released today by the Mortgage Bankers Association jumped to 6.62%.

Homebuilders, in their Q4 earnings call, reported from one side of their mouth that sales orders (net signed contracts) after cancellations had fallen 40% to 60% across the board year-on-year — a sign of their future. are revenue. But current revenue is still based on what’s left over from their backlog, so okay.

Toll Brothers said with one side of its mouth today that its “net signed contracts” fell 51% year-over-year — its future revenue. And from the other side of its mouth, it joined the chatter of the other house builders.

On the other side of their mouth, they all talked about improvement in buyer interest, and improvement in buyer confidence, and improvement in contract signings based on their January activity, which was well above rock-bottom low, Because the spring sales season began after the holidays, partly because mortgage rates had fallen, and also on the expectation that Implementing large price cuts some of them will increase sales orders.,

But that was so January. With 7% of mortgages now winding down for the spring sales season, the decline in purchase mortgage applications is giving an early indication of where sales are expected to be headed during this time.

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