Mortgage Rate Trends

Back on recession watch, Leading Indicator #2 – the FHA mortgage delinquency rate. This isn’t typically in lists of leading economic indicators, but it may be a proverbial canary in the coal mine in the current context. FHA borrowers have low to moderate incomes, with a median income of about $75,000 a year, and most are first-time homebuyers. Judging from the recent increase in the delinquency rate on FHA loans, these households are under mounting financial stress. This is despite the exceptionally low 4% unemployment rate and goes in part to the credit characteristics of the borrowers, including lower credit scores and downpayments. Even more important may be their high debt-to-income ratios. With mortgage rates and house prices as high as they are, borrowers have to shell out a big share of their income to their mortgage payment to get into a home. They may have gambled that rates would fall and could refinance, bringing down their payment. However, the Fed’s higher-for-longer rate policy and quantitative tightening have forestalled that exit strategy. Combine this with higher homeowner insurance premiums and property taxes, and borrowers struggle to make mortgage payments. What happens when the job market wobbles even a little bit? Thus, why this is a good statistic to include in our recession watch. Not that the financial troubles of FHA borrowers are enough to push the economy into recession. Indeed, high and middle-income mortgage borrowers are having no trouble making their payments at this time – the gap between the FHA delinquency rate and those on Fannie and Freddie loans has never been as large. But if the economy is headed for trouble, it is FHA borrowers who will signal it first. And they are. #rates #FHA #income #recessionwatch #fed

Heading into 2025, many expected mortgage rates to move closer to 5% than 7%. Instead, 18 months later, we’re still stuck in a “higher-for-longer” environment, with rates lingering in the high-6% range.   The housing demand implications of this are significant, as our calculations show that if mortgage rates were to fall back to 5%, another 6.8 million households could technically afford to buy a home (!).   At first glance, that would seem to make the case that lower rates are the key to unlocking demand. But here's the interesting part: the majority of consumers already have access to mortgage rates around 5% through builder incentives. In other words, builders are already offering financing that addresses much of the monthly payment challenge.   That doesn't mean affordability is no longer an issue (far from it). However, if shoppers can already access financing that closely resembles a 5% mortgage, affordability alone can't explain today's demand gap. Something else has to be keeping prospective buyers on the sidelines.   So what is that missing piece? The reality is that it's probably a combination of factors: uncertainty about job security, contentment with a current home, difficulty saving for a down payment, or simply a sense of “meh” about the homes available on the market today.   It’s really that last point that keeps me up at night because it’s one of the few challenges that the homebuilding industry can directly influence. We spend a lot of time talking about affordability, and we should. But as consumers become increasingly focused on value, maybe it's time to ask some different questions: - How do we make homebuying exciting again? - How do we create homes and communities that inspire people to take the next step? - And how do we give consumers a compelling reason to move now instead of waiting for a better tomorrow? Zonda Sarah Bonnarens Sean Fergus Trevor Tetzlaff Eva Beeth Alexander Edelman Eric Alanis Tim Sullivan Peter Dennehy Evan Forrest Bryan Glasshagel Susan Heffron

How are Middle East tensions impacting the housing market? Our latest Zoopla HPI is out today and has the latest on current trends The sales market is still moving — but the balance between sales and demand is shifting. Recent tensions in the Middle East have pushed mortgage rates higher and raised fears for inflation and the cost of living. This is starting to feed through into buyer behaviour. Demand is down on last year but sales agreed are holding up as serious movers support sales. Buyer demand has been running below last years levels over Q1 - events in the Middle east saw the gap widen over March and buyer demand is running 13% below last year (as at 22 March) However, talk of a possible deal last week has seen the gap narrow over the last week as buyers digest the news and more are returning to the market. Buyer demand is more volatile than sales agreed which are down just 2%. Record numbers of homes for sale mean many serious movers in the market who can only hold off on plans for so long where it cam take many months to find a home and complete a sale. What we see is fewer people are entering the market, but those who remain are more committed - often with mortgage offers agreed or a clear need to move. These “serious movers” are keeping transactions flowing, even as some early-stage buyers adopt a ‘wait and see’ approach. For buyers, this means: - Less competition - More choice - But tighter affordability if no mortgage rate locked in For sellers: - Homes are still selling - But pricing and presentation matter more House price growth remains stable for now (+1.3% annually), but the outlook depends on what happens next with mortgage rates and buyer confidence. The takeaway: Sales activity isn’t slowing - it’s becoming more selective, and increasingly reliant on a smaller pool of committed buyers. #housing #estateagents #newhomes #mortgage #property

This crucial macro indicator shows the clock is ticking for many economies: tick tock, tick tock. As we know, the US economy is quite shielded from higher interest rates: 1) Contained levels of private sector leverage 2) Only gradual refinancing cliffs 3) 30-year fixed mortgages and long-dated corporate borrowing locked in It might still take long, but tracking the extent of the passthrough of Fed hikes to the economy is key to understand when this macro cycle is about to turn sour. And the good news is that you don’t need a complex model to estimate refinancing cliffs, mortgage resets and all that. Instead, for a quick and effective glance you can rely on a publicly available metric: Debt Service Ratios (DSR). Debt service ratios are a proxy for the share of available income or earnings that households and corporates must direct towards debt servicing costs. The more of your income you must direct towards debt servicing costs, the less you have for consumption and spending. And as a result, the economy slows down. The higher the private sector leverage, the higher the share of floating rate loans and mortgages, and the higher the share of refinancing or rates resets the more likely DSRs will shoot higher during a hiking cycle: that’s evidence that Central Banks’ rate hikes are getting transferred to the real economy. Instead, an economy with contained private sector leverage revolving around 30-year fixed mortgages is going to experience a very limited DSR increase even in the face of hikes. But it's the rate of change which matters the most: rapid increases in the Debt Service Ratio are a big red flag. Take a look at the table below: can you spot who is in trouble? Something might break sooner rather than later, but it's probably not where you think it will. Follow me (Alfonso Peccatiello) for more macro analysis like this.

Never so Strong/Never so Weak These two conditions are both true. First, the housing market is strong with prices at a record high. While this “high price” condition is true, owning a home has never been so unattainable. The U. of Michigan Survey reports that “Buying Conditions for Homes” is the weakest on record, since the late-1970’s (graph below). Last week, it was reported that Housing Starts declined 5.5% seasonally adjusted to an annualized rate to 1.28M, which equates to a decline of 19.3% year-over-year. The mortgage purchase applications reported by Mortgage Bankers Associate report consistent data as the application rated has declined 11.8% y-o-y, and even more when including refinancings. Bottom line: ZIRP enabled homeowners to attain ultra-low mortgages, thus creating a lock-in effect, that lowers supply, pushes prices higher which reduces the percentage of home buyers that can afford the higher priced homes financed at higher mortgage rates. Home insurance, RE taxes, maintenance has risen in line with inflation costing the homeowner 20% more than pre-COVID which is in addition to the cost of the home and the cost of financing. Affordability has become a greater factor influencing housing market dynamics as it lower ‘D’ sufficiently in the Supply-Demand equation. The good news is that help is on the way. Later this year, the Fed will begin to lower rates, however, they will lower the Fed Funds rate and a 30-year mortgage is priced off the 10-year treasury, so although the front end will come down, what happens to intermediate UST rates is the key to the equation. When looking at U of Michigan Survey, I take comfort knowing this is likely what a trough looks like. It is a healthy condition too that household net worth relative to income is near record high levels. If mortgage rates decline, hosing activity will pick up due to affordability, and while more homes will come on to the market for sale, prices, I do not expect this increased supply to drive home prices lower since there is still a 3M shortage of homes. Home builders will build/deliver, however, they will be disciplined not to over-supply the market and maintain profit margins despite higher cost for land, labor, and materials. Multi-family rentals have also surged and continue to be firm given how more affordable it is to rent than to buy. Data released today from Zillow show nationwide rents have advanced 30.4% since COVID, above the 20.2% rise in incomes over this period. Last week, the Federal Reserve Bank of Kansas City released their economic bulletin on Housing that discusses housing inflation and its impact; this graph from the KC Fed (below) focusses on lack of mobility for a large cohort of homeowners that would face significantly higher housing costs if they were to move, with the knock on effect that this dynamic creates less available supply of housing stock, and as a result higher prices given demand for housing.

Pending Home Sales Deliver a Major Upside Surprise The National Association of REALTORS® released its Pending Home Sales Report this morning, offering one of the most forward-looking reads on U.S. housing demand. Unlike existing-home sales, which reflect transactions already completed, pending home sales track homes under contract and capture buyer intent earlier in the decision process. Pending home sales jumped 3.3% month over month in November, far exceeding expectations, and rose 2.6% from a year earlier. Gains were broad-based across all four regions, with the Pending Home Sales Index climbing to 79.2 from 76.7, its strongest level in nearly three years after seasonal adjustment. The timing matters. This surge follows last week’s existing-home sales report, which also showed a modest increase. Taken together, the two releases suggest November’s improvement was not simply the clearing of older transactions delayed by earlier rate volatility. Activity appears to be strengthening at multiple points in the housing funnel, from contract signings to closings, pointing to renewed buyer follow-through rather than residual momentum. That distinction carries broader economic implications. Housing is among the most interest-sensitive sectors and often serves as an early signal of shifts in household behavior. Rising pending sales indicate consumers are becoming more willing to make large, long-term financial commitments even as mortgage rates remain elevated by historical standards. Rather than waiting for perfect conditions, buyers appear to be recalibrating expectations and moving forward as conditions stabilize. Improving housing intent tends to ripple outward. Increased contract activity supports demand for mortgage lending, insurance, real estate services, and, over time, spending on home improvement, furnishings, and local services. While this report does not signal a return to excess, it suggests the drag housing has placed on economic growth may be easing. Mortgage rates have eased modestly, wage growth continues to outpace home price gains, and inventory is more available than a year ago. That combination appears sufficient to unlock sidelined demand without reigniting unsustainable acceleration. The picture that emerges is one of adjustment rather than exuberance. Havas Edge tracks pending home sales closely because they reveal shifts in consumer intent and economic behavior before those changes appear in completed transactions, credit data, or broader consumption trends.

I spoke with Bloomberg yesterday about the state of the housing market. Here are a few key takeaways: Easing Rate Lock-In Effect: Currently, 81 percent of mortgaged homes have a rate below 6 percent, a decrease from the peak of approximately 93 percent in 2022. Despite this improvement, the rate lock-in effect continues to constrain the market's full potential. Regional Market Variations: While the national housing market is trending towards a buyer's market, significant regional differences persist. Markets in Southwest Florida and parts of Arizona, Texas, and Colorado have weakened, whereas pockets in the Northeast and Midwest, including my hometown of Rochester, NY, remain seller's markets. Signs of Improvement: Although overall sales activity remains subdued, there are tentative signs of modest spring recovery. Pending home sales and purchase mortgage applications have seen slight increases compared to last year. This slow thaw is driven by factors such as wage growth outpacing house price appreciation, improving affordability, and increasing inventory. Life Events Driving Demand: Life events continue to drive housing demand. However, affordability challenges and macroeconomic uncertainties are keeping many potential buyers on the sidelines. Nonetheless, the slight uptick in activity offers cautious optimism for the remainder of the year, especially if interest rates moderate (though we're not predicting significant mortgage rate declines this year). Check out the full interview below! https://lnkd.in/eUSiKkVJ

US consumers got a USD 600 billion tailwind from locked-in #mortgages. We estimate the gap between existing and market rates for US mortgages has provided consumers with an extra USD 600 billion since early 2022 (up to 2% of disposable income). This has undermined the monetary #policy transmission mechanism and helps explain why US consumer spending has remained resilient to monetary tightening. The flip side of this means that locked-in mortgage rates may similarly limit the effectiveness of monetary policy easing, adding to the list of downside risks to growth and also to maintain #affordability pressures. For example, year-on-year house price growth has moderated to below 6%, but prices remain 60% above 2020 levels.   During the recent Federal Reserve monetary policy tightening cycle, market rates for US mortgages exceeded the average rate borrowers paid on existing mortgages by as much as 3.2 percentage points. Such a gap has significant economic implications: it lowers monetary policy effectiveness by supporting consumer resilience during hiking cycles and reduces the stimulus effect when rates ease. The structure of the US mortgage market causes this effect. Over 95% of US home loans are 15- or 30-year fixed-rate mortgages. By the end of 2Q24, the market rate for mortgages was roughly 7%, compared to an average existing mortgage interest rate of about 4%. We reviewed this gap for the two years through 2Q24 and estimate that homeowners with fixed-rate mortgages amassed over USD 600 billion in "savings" from their mortgages in the post pandemic expansion, amounting to nearly 2% of personal consumption spending. This helps explain why recent policy tightening did not, initially, appear to slow the economy.   We expect limited stimulus for consumer spending from the monetary policy easing cycle, expected to start in September, due to this low interest rate sensitivity of private consumption. With spending tailwinds fading though and equity markets priced to perfection, the downside risks to growth have risen, threatening a sharper easing cycle over the next year than our baseline currently assumes. https://lnkd.in/eTXtwBjC James Finucane, Mahir Rasheed, Jessica Oliveira Lee  

The 10-year Treasury borrowing rate is 3.9%. Under normal circumstances and based on a normal historical spread between the two interest rates, the average mortgage rate should be 5.6% to 5.9% today. The mortgage rate spread is instead still abnormally high (at 250 basis points) and therefore yielding 6.4% average mortgage rate. One reason for the large spread is due to the cloudy balance sheet among small and regional banks who have exposures to deteriorating office loans. To raise cash, some banks are selling off mortgage loans and mortgage-backed securities. The Federal Reserve’s own reduction in holdings of Fannie and Freddie backed mortgage backed securities is also at play.

Did rates drop? alcove monthly As we approach the middle of February, we are gaining more insights into how buyers feel in 2025, and changes in their appetite are beginning to show. Over the past couple of weeks, we have seen a marked increase in our older (by time, not age) buyers. Those who went dark for a few years and pressed pause for often life reasons are coming back bit by bit. This is usually one of the first signs of a growing buyer pool and strong buyers entering. They have returned from the Christmas break with a desire to get things done and an expectation that there is no perfect time to buy, but pre-rate cuts feel better than post-rate cuts. New buyers having their first crack at buying are constantly entering and will more likely want to buy now that rates are going down again, but second or third-time buyers will ultimately drive prices higher in the short term. Buyers who re-enter often feel financial pain about what they could have or should have done or bought on their last effort, but more powerfully is the emotional pain and exhaustion they felt the last time they tried. These buyers often come back with a laser-eyed focus and understanding of what it takes to get a deal done and are ones you do not want to compete with if you are a new buyer. While yesterday's rate cuts sound better than nothing for every mortgage holder, what matters more is that rate expectations have increased, not lowered, in recent weeks. Where we believe rates will be in December this year and beyond matters. While these rate expectations stay high, FOMO should remain contained. Still, markets don't act rationally, and any price increase can have a rippling effect when buyers' budgets are tightly restricted. If you are looking to buy now, you probably already realise that December was a better time to buy than February, and now would be better than May and August in quality asset markets. You might feel slightly nervous, and while you might feel like you can hold on to hope, I would also be cautious about focusing my efforts on the one rabbit everyone wants and for which buyer demand is high. The opportunity to get these assets has most likely run on you, and instead of waiting for the inevitable pain of realising that in a few weeks, it could be time to walk away from that hot property and shift to the markets they will likely move to when they miss out. It feels like you're giving up, but you're not, and it's time to go looking for the next suburb out, the property with great land but less desirable, the one just not as good. Buyers like seagulls are flocking to the one chip, and now is the time to fly away and try your luck elsewhere before they realise it too and come looking at the properties you will look at. 2025 doesn't feel like 2019, when the market took off like a rocket post-May election, but it does of the ingredients if a few cards fall it way.