Market Recap: Mortgage Applications Dip, Existing Home Sales Slump, More Rate Hikes Expected
Mortgage rates continue to trend upward but are averaging less than half of a percentage point higher than they were this time last year. The weekly mortgage application survey showed a week-over-week decline, but a year-over-year increase. Existing home sales scaled back, though not as drastically as they did in December. The Federal Open Market Committee (FOMC) released the minutes from its January meeting, and the market expects the first rate hike of the year to take place in March.
The Mortgage Bankers Association (MBA) mortgage application survey showed both new purchase and refinance application declined for the week ending 2/16. As rates continue to rise, new purchase applications fell 6.0% and the more rate-sensitive refinance segment fell 7.0% for a composite decrease of 6.6%. Despite the week-over-week decline, application submissions are still up 3.5% from one year ago. Some homeowners are opting to take out home equity lines of credit rather than refinance, to keep their low interest rate. As home prices continue to appreciate, homeowners will likely continue to build equity.
Existing home sales, or resales, make up the majority of real estate transactions. In January, existing home sales fell 3.2% to a seasonally adjusted annual rate of 5.38 million units. All four regions showed declines. Rising rates are not hurting sales activity as much as lack of available housing inventory. National Association of Realtors (NAR) chief economist Lawrence Yun explained, “the utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the US last month.”
The FOMC released the minutes from its January meeting on Wednesday, and the overall economic outlook is confident. Low unemployment and steady economic momentum make the Fed optimistic about hitting the targeted inflation rate. The FOMC voted to leave the benchmark interest rate unchanged in January, but analysts are pricing in a March rate hike. The March meeting will be the first with new Federal Reserve Chair Jerome Powell at the helm.
Rates are likely to continue rising in 2018, though any change will be gradual. When the FOMC votes to raise the benchmark interest rate, mortgage rates will react, though it is unlikely that the market will see any drastic spikes akin to the rapid inflation that took place in the 1980s. By historic standards, rates are still near all-time lows, starting to climb now to reflect economic recovery.
Sources: Bloomberg, CNBC, CNBC, HousingWire, MarketWatch, Mortgage News Daily