The slow process of market stabilization - Movement Mortgage Blog

Mortgage interest rates and home prices continue to take top billing in housing market discussions, and rightfully so, because those are two huge influences on the purchase market. Housing prices appeared to be cooling off slightly, only to have the pace of growth jump to 20.6% year-over-year in March. The S&P CoreLogic Case-Shiller Home Price Index showed that rapidly rising interest rates did little to slow skyrocketing home prices. March’s increase was the highest annual price change in nearly four decades’ worth of data.

For homeowners this is great news as their home equity continues to appreciate. Homebuyers see it a different way. Freddie Mac’s latest 30-year fixed-rate mortgage average shows rates at 5.09%. In a historical sense this is still an excellent rate. But for folks who have seen rates dip into the 2% range over the last couple of years, 5% seems hefty. Furthermore, as rates continue to move higher in tandem with home prices, borrowers are being priced out as it becomes more expensive to afford a mortgage. A 1% increase in a mortgage rate could end up meaning a couple hundred dollars more a month in payments.

Freddie Mac’s economists do hold on to a silver lining in their analysis, saying “Heading into the summer, the potential homebuyer pool has shrunk, supply is on the rise and the housing market is normalizing. This is welcome news following unprecedented market tightness over the last couple years.”

Supply is the key portion to the equation. It wasn’t just purchase demand driving the housing market during the COVID pandemic—originators were flush with refinances, too. In Q3 alone last year there were nearly 2 million refinances. These millions of refinances mean that fewer people put their existing home on the market and will likely not sell their homes for the next few years. That puts a significant dent into inventory.

However, as Freddie Mac’s economists said, housing inventory is slowly starting to come back as demand slows. According to Realtor.com’s Monthly Housing Trends Report, “Nationally, the inventory of homes actively for sale on a typical day in May increased by 8.0% over the past year, the first time active inventory has grown since June 2019.” 

That is a trend in a good direction for potential homebuyers, but the bidding wars don’t seem to be in the rearview mirror just yet. Realtor.com’s report goes on to show that “The typical home spent 31 days on the market in May, which is almost a full week (6 days) less than last year and is the shortest time on record (since 2016).

 

SLOWING OR GROWING? 

The latest jobs report released by the Labor Department shows job growth was better than expected in May as the U.S. economy continues to work its way out of pandemic-era policies. The Labor Department showed nonfarm payroll rose by 390,000 in May with the unemployment rate unchanged at 3.6%. Economists had expected an increase of 328,000. These are indications of a tight labor market, which is a good thing. Right now it’s estimated there are about two jobs available for every unemployed person.

The report also showed wages increasing by 0.3%. Economists had estimated a 0.4% increase, but felt that markets would likely only react strongly if the increase was at a 0.5% or 0.6% level. Typically, when wages trend upward in a meaningful way that can cause a selloff in stocks and bonds. When bonds sell off, that means yields rise. And as we’ve mentioned many times before, when the 10-year Treasury note yield rises mortgage rates will typically follow suit. 

The ADP private sector payroll report released earlier in the week shows the number of jobs rose by just 128,000 which was below the 299,000 estimate from Dow Jones economists. April’s ADP report was also downwardly revised to 202,000 from 247,000.

About the Author:

Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.