The rate of those filing for mortgage applications rose for the 3rd consecutive week for the week ending 17/11/23, this time by 3%. However, this was on a seasonally adjusted basis, if the figure was unadjusted, it would have been a reading of a 0.1% fall. Additionally, the Refinance index increased by 2% from the previous week but is 4% below the same reading from the previous year. Finally, the seasonally adjusted purchase price index, which measures nationwide loan applications based on a sample of 75% of US mortgage activity, increased by 4% while the unadjusted reading was a fall of 1% and 20% lower than the reading from the previous year.
This therefore demonstrates that although, on a seasonally adjusted basis, mortgage applications are increasing, they are still dramatically below readings from the same week last year, which were also seasonally adjusted and therefore comparable. A contributing factor to the increase in applications is mortgage rates which have seen easing since inflation began trending closer to the FED’s 2% target. The 30-year fixed-rate mortgage currently stands at 7.41% while the 15-year fixed-rate mortgage is at 6.89%.
In my opinion, it is not a good sign if applications increase given the high mortgage rates now, in combination with the Case-Shiller Home Price Index being at almost an all-time high of 317.88. Thus, even if mortgage rates are falling, home prices are still increasing which in turn may cancel out the benefit of lower rates. Additionally, in the short term, a 6/7% mortgage rate may not be too bad, however, after a period, households are going to find themselves with a much lower standard of living, assuming job opportunities stay the same, due to them having less disposable income. This in turn will bite economic growth as demand in the economy begins to drag and thus, supply follows.
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