LIVE MARKETS-Borrowing costs dip, but not by enough: Year-over-year mortgage demand turns negative

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BORROWING COSTS DIP, BUT NOT BY ENOUGH: YEAR-OVER-YEAR MORTGAGE DEMAND TURNS NEGATIVE

The eye of the data storm passed on Wednesday, leaving investors to make do with only home finance data courtesy of the Mortgage Bankers Association (MBA).

The upshot? Mortgage rates dropped last week, but borrowers were, on balance, unimpressed.

The average 30-year fixed contract rate USMG=ECI shed 6 basis points to settle at 6.51%, which still marks the second-highest level so far this year.

That prompted a 1.1% increase in demand for loans to purchase homes USMGPI=ECI - among the housing market's most forward-looking indicators. But refi applications USMGR=ECI, which accounted for a 44.3% share of the mortgage pie, offset that gain by dropping 2.8%.

Combined, home loan demand dipped by 0.8% last week.

"Higher mortgage rates and continued economic uncertainty weighed down on mortgage applications again last week,” said Joel Kan, MBA’s deputy chief economist. "While mortgage rates saw a slight reprieve ... many potential refinance borrowers have been frozen out by the sharp increase over the past month."

The 30-year fixed rate currently sits 10 basis points below where it was during the same week a year ago.

Over that same period, purchase applications have dropped by 6.7%, while refi demand has dampened by 4.3%.

While purchase applications are relatively forward-looking, it's still last week's data.

Housing stocks, on the other hand, reflect where investors expect the sector to be six months to a year in the future.

With that in mind, investors see some weakness in their crystal balls.

While housing-related indexes - the S&P 1500 Homebuilding Index .SPCOMHOME and the PHLX Housing Sector Index .HGX - handily outperformed the broader market in the first two months of the year, that advantage evaporated in March when the war on Iran pushed interest rates higher, taking mortgage rates with them.

Year-to-date, the SPCOMHOME and the HGX are now off 7.2% and 2.5%, respectively. During that time, the S&P 500 .SPX has dipped 3.3%.

(Stephen Culp)

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