In no surprise, the sharp rise in mortgage rates from June through September had an impact on the market. The July and August readings of the diffusion index for foot traffic reflected the impact by way of a sharp decline. However, by September the decline had reversed course with slightly lower mortgage rates, making up some of the ground. This recovery trend was modestly extended in October suggesting a bottom or plateau at a strong level by recent standards.
Every month SentriLock, LLC. provides NAR Research with data on the number of properties shown by a REALTOR®. Foot traffic has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two to three months into the future. For the month of October, the diffusion index for foot traffic rose 0.6 points to 51.2.
Mortgage rates ticked upward in the first half of October as MBS and Treasury prices fell in the buildup to the Federal debt limit, but were still down from the 4.5% to 4.7% levels seen in late summer. Furthermore, furlough and job uncertainties as well as financing issues due to the government shutdown should have impacted consumer sentiment. However, foot traffic inched upward for a second consecutive month contrary to some anecdotes. Inventories remain tight in some markets, which could limit the upside to foot traffic until additional nascent inventory comes to the market.
This month’s reading extended last month’s recovery. The index inched just above the important “50” mark in August which indicates that more than half of the markets in this panel had stronger foot traffic in October of 2013 than the same month a year earlier. This reading does not suggest how much of an increase in traffic there was, just that the majority of markets experienced more foot traffic in October of 2013 compared to a year earlier.
The recovery in foot traffic appears to have taken hold suggesting a more steady market at a high plateau by recent historical standards through winter months. However, this month’s reading provides a clearer picture of the impact from higher mortgage rates as the modest decline in rates from the summer rates provided some lift to the market, even during potential disruptions from the government shutdown. A longer sustained period of mortgage rates north of 4.5% could have a stronger impact on foot traffic, contracts, and home sales.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage applications.
- Applications to purchase homes perked up over the last week following the end of the government shutdown and debt ceiling showdown, according to data released this morning by the Mortgage Bankers Association. While the headline figure fell 0.6%, the purchase component rose 0.7%, ending a 3-week decline. The sharp decline came despite a 25 bp decline in the average rate on a 30-year fixed mortgage over this period. The average rate did rise by roughly 15 bp in the days immediately leading up to the debt ceiling deadline, though.
- In a bit of a surprise, conventional purchase mortgage applications declined an additional 1.7%, while the government portion of the index bounced back by a robust 7.1%. The USDA was shuttered during the government shutdown and the FHA was working with a skeleton crew. The increase in the government component nearly offset the prior week’s decline.
- With the end of the government shutdown and debt ceiling crisis, the short-lived slide in the housing market appears to have stabilized. The IRS, FHA, and USDA may have a backlog of work in the near term in order to catch up with information requests and applications, but these “lost” sales will likely be recovered in the weeks and months ahead. However, the resolution to the shutdown and debt debate only pushed the deadlines to mid-January and mid-February, respectively, which a chance for discussion in between suggesting that we could experience this process all over again in a few months. Mortgage rates rose during the days leading up to the debt ceiling limit, but have since eased further than levels prior to the crisis indicating that average rates could move lower in next week’s reading from Freddie Mac.
Every month NAR Research monitors foot traffic in roughly 160 markets across the country. The number of visits to actively listed homes has a strong correlation with future trends in contracts and closing for home sales. After a sharp decline in year-over-year growth of foot traffic last month, the trend shifted toward stabilization in September. This month’s measure is a more clear indication of the impact of mortgage rates on consumer interest in home purchases.
Every month SentriLock, LLC. provides NAR Research with data on the number of properties shown by a REALTOR®. Foot traffic has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two to three months into the future. For the month of September, the diffusion index for foot traffic rose 26.3 points to 50.6.
In early September, the Federal Housing Finance Agency (FHFA), the entity that oversees Freddie Mac and Fannie Mae, gave notice that it would revise the conforming loans limits in an attempt to stimulate the private sector, specifically the private mortgage securitization (PLS) market. Though any reduction in the loan limits is expected to be relatively modest, it could have more far reaching impacts at the local level and for the affected borrowers.
Each year, the FHFA adjusts the national conforming loan limit which defines the space within which Fannie Mae and Freddie Mac can finance mortgage. The national limit is $417,000, but that varies by county and can increase to $625,500 in high cost markets. The FHA’s limits, which range from $261,050 to $725,750, are based off of the conforming limit so the FHFA’s actions would impact FHA borrowers as well.
NAR Research estimates that if the national conforming limit were lowered to $400,000, roughly 145,000 total conforming mortgages and 49,000 conforming purchase mortgages would have been impacted in 2012 . If the FHA limits were also revised, the impact would be larger by roughly 15,000 and 7,000 borrowers, respectively. The total number was inflated due to the refinance boom in 2012. However, strong price growth in 2013 has likely pushed more home buyers toward the conforming limits. Most estimates have the impacted volume at roughly 2-5% nationally.