Update on Housing Market from California Association of Realtors.
The housing market shift continues as rates remain near decades-highs. There are signs that the rate increase is
leveling off, however, as the average 30-Year Fixed Rate Mortgage (FRM) declined for the second week in a row.
Mortgage demand also seems to be turning the corner, as applications began dipping at a more moderate pace in
the past week. There are plenty of headwinds, nevertheless, as inflation is expected to further erode purchasing
power in the short term, while home sales will likely be restricted by housing supply constraints in the second half
of 2022.
leveling off, however, as the average 30-Year Fixed Rate Mortgage (FRM) declined for the second week in a row.
Mortgage demand also seems to be turning the corner, as applications began dipping at a more moderate pace in
the past week. There are plenty of headwinds, nevertheless, as inflation is expected to further erode purchasing
power in the short term, while home sales will likely be restricted by housing supply constraints in the second half
of 2022.
New Home Sales Plummet as Rates Climb Further: Demand for new housing units dipped again in April with
new home sales plunging 16.6% from a month-to-month basis. It was the second consecutive double-digit
decline and was the sharpest monthly contraction since July 2013. The 591,000-unit annual pace of new
home sales was the slowest pace since April 2020 when COVID had its first pandemic lock-down. High
mortgage rates played a role in the pull-back in sales, as the average 30-year FRM nearly surpassed 5% in
April and remained elevated in recent weeks. New home prices were another factor for the slowdown in
sales, as the median new home price rose another 19.6% from April 2021. The inventory of new homes has
improved though, with the number of unsold homes that were under construction climbing to 288,000, the
highest level since 2007.
Mortgage Rates Dip to the Lowest in Four Weeks: Mortgage rates dipped again in the second straight week
with the 30-year FRM declining to the lowest level since the end of April. With the core PCE - the Fed’s
preferred inflation gauge - dropping for the second consecutive month and the Fed minutes reaffirming that
the U.S. Central Bank will stay on course but not likely to be overly aggressive in rate hikes, the bond market
showed little change since the mid of last week. U.S. Treasury yield, in fact, moved lower by the end of the
week, despite a strong uptake in the stock market. While it is possible that the bulk of the rate increase in
2022 may have already taken place in the past few months, cost of borrowing could remain elevated for the
rest of the year as the Fed tries to keep inflation under control.
Mortgage Applications Continue to Decline but at a Slower Pace: Despite a slight pull-back in mortgage rates
in the past couple of weeks, mortgage demand slid further by 1.2% from a week earlier. Refinance
applications dropped 4% from the prior week and was 75% lower than the same week of last year, while
purchased applications dipped 1% week-over-week and was 16% lower than the same week one year ago.
With rates hovering at levels not seen in the past 10 years and home prices remaining near record highs, the
Purchase Index stayed close to the lowest level observed in the spring of 2020, when the housing market was
put on hold due to COVID uncertainties.
Americans Are Saving Less: Consumers dipped further into their savings last month as cost of inflation
outpaced wage growth. The personal savings rate fell to 4.4% in April, hitting the lowest level since 2008. The
rate has been steadily declining since March 2021 when it hit its recent high at 26.6%. Despite decades-high
inflation, consumer spending is not slowing as much as expected. American households have accumulated
an estimated $2.3 trillion in excess savings throughout the pandemic, and many have been tapping into their
rainy-day funds. Credit cards are also being used more often to offset the rising costs. Revolving credit –
mostly credit card debit – increased by $31.4 billion in March, the largest monthly gain going back over 50
years.
Missing Middle Housing Development Still Missing: Constructions of medium density housing such as small
multifamily properties have disappointed in the past couple of years. There were only 12,000 starts of the
missing middle 2-4 apartment units in 2021, unchanged from 2020, while most other market segments
expanded during the same period. For the first quarter of 2022, the construction starts of 4,000 2-4 unit were
flat compared to the first quarter of 2021. As a share of all multifamily production, these medium density
units made up 3.2% of the total, significantly lower than the average of nearly 11% between 2000 to 2010.
Without more missing middle housing production, supply will remain tight in the near future.
Source: CA Association of Realtors.
Please contact Alena Lehrer: [email protected]
