LIVE MARKETS-Mortgage rates at highest since January - applications dip

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MORTGAGE RATES AT HIGHEST SINCE JANUARY - APPLICATIONS DIP

The cost of financing home loans notched a third straight increase last week, dampening aggregate mortgage demand in the process, according to the Mortgage Bankers Association (MBA).

The average 30-year fixed contract rate USMG=ECI heated up by 6 basis points to 6.98%, the highest it's been since January.

Apparently, potential buyers are just fine with higher borrowing rates; demand for loans to buy homes USMGPI=ECI increased by 2.7%.

But the near-7% borrowing rate was too rich for the refi crowd, which accounted for 34.6% of total mortgage activity. Applications from those looking to refinance current mortgages USMGR=ECI fell by 7.1%.

Combined, total demand for home loans dropped by 1.2%.

“As a result of these higher rates, applications activity decreased, driven by a 7 percent decline in refinance applications," writes Joel Kan, MBA’s deputy chief economist. "Purchase applications were up over the week and continue to run ahead of last year's pace as increased housing inventory in many markets has been supporting some transaction volume, despite the economic uncertainty.”

The 30-year fixed rate, having taken a roller coaster ride over the last 12 months, is now just 7 basis points cooler than it was the same week a year ago.

Over that same time frame, purchase and refi demand have grown by 17.1% and 36.7%, respectively.

An uptick in demand for loans to buy homes, which is considered one of the housing market's leading indicators, would appear to contradict other housing data of late; building permits are off, homebuilder sentiment is at its lowest in 1-1/2 years, and sales of pre-owned homes unexpectedly slipped in April.

Even so, all economic indicators are backward-looking.

For a look at where investors expect the sector to be six months to a year down the road, we turn to the stock market.

For much of the post-pandemic era, housing-related stocks - the S&P 1500 Homebuilding index .SPCOMHOME and the Philadelphia SE Housing index .HGX - handily outperformed the broader market.

But that relationship capsized in early November.

The SPCOMHOME and HGX indexes are currently down 15.2% and 8.5%, respectively, over the last year, while the benchmark S&P 500 .SPX has advanced 11.6% during that time.

(Stephen Culp)

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