Mortgage Market Update: Rates Rise, ARM Share Climbs, & New Home Sales Cool

Welcome to your weekly market pulse from CMRE! The past few weeks have painted a dynamic, albeit challenging, picture for the U.S. mortgage and housing markets. Elevated mortgage rates continue to be the dominant force, shaping borrower behavior and influencing home sales.

Mortgage Applications See Mixed Signals

Recent data from the Mortgage Bankers Association (MBA) shows a seesaw effect in mortgage application activity. For the week ending August 28, total application volume saw a modest 0.8% increase, primarily driven by a 2% rise in purchase applications on a seasonally adjusted basis. This signals a continued, albeit cautious, resilience among buyers, even with rates hovering near 7%. However, purchase activity remained 0.2% below year-ago levels.

This modest rebound followed a softer week ending August 21, which saw a 1.0% decrease in total applications, with purchase applications down 0.3%. Refinance demand, however, continues its struggle. For the week ending August 28, the Refinance Index fell 1% week-over-week and remained a significant 19% below year-ago levels. Refinances now account for a slightly smaller share of overall activity, at 41.8%.

"Mortgage rates reached their highest levels in four weeks as investors’ concerns about inflation and growing deficits push yields higher across the globe," noted Mike Fratantoni, MBA’s SVP and Chief Economist. This environment is clearly impacting refinancing much more acutely than purchases.

The Rise of the ARM

As fixed mortgage rates climb, borrowers are increasingly exploring alternatives. The adjustable-rate mortgage (ARM) share of activity has steadily risen, reaching 8.0% for the week ending August 28 – its highest level in five weeks. This trend underscores a borrower adjustment to the rate environment, particularly as the average rate for a 5/1 ARM fell to 5.94% during that period. For those looking for lower initial payments, ARMs present a viable option.

New Home Sales Give Back Gains

Turning to the housing supply, the new home market experienced a setback in July, largely erasing the gains seen in June. Sales of new single-family homes dropped to a seasonally adjusted annual rate of 607,000, a substantial 10.5% decrease from June's revised 678,000. This also put sales 6.3% below July of last year.

Builders, meanwhile, added to the inventory, with the number of new houses for sale climbing to 488,000, a 1.9% increase from June. With sales slowing and inventory rising, the implied supply of new homes jumped to 9.6 months, up from 8.5 months in June. This suggests a less competitive market for new constructions, potentially giving buyers more leverage.

Pricing signals were mixed. The median sales price for new homes slipped to $393,800, down 2.3% from June. However, the average sales price increased to $508,800, up 4.1%. This discrepancy can often be attributed to shifts in the types and sizes of homes being sold.

CMRE's Takeaway

The current mortgage landscape is characterized by high rates and cautious optimism. While refinancing remains subdued, purchase demand shows resilience, supported by buyers exploring options like ARMs. The new home market is navigating affordability challenges with increasing inventory. For potential homebuyers and sellers, understanding these nuances is key. Connect with CMRE to discuss how these trends impact your specific real estate goals.