Rates have climbed almost a full 1% point since early February, as this Mortgage News Daily Chart indicates.
In direct response to this increase in rates, purchase money mortgage applications plummeted – showing once again how sensitive buyers are to interest rates.
And – the Mortgage Bankers Association “Purchase Index” (based largely on mortgage applications) fell to its lowest level in 25 years!
What makes all this both very surprising and interesting is the fact that the market was surprisingly “hot” in January, as rates were falling and expected to continue to fall.
I even blogged about it in January: Market Shockingly Hot; Fast Closes Are a Thing Again!
In response to the MBA data, rising rates, and slowing sales volume – scare-mongering headlines surfaced everywhere – again warning us all about the “impending housing crash.”
Social media is the worst, as thousands of wannabe pundits publish “fear porn” daily.
A lot of these pundits focus on affordability and the expected onslaught of inventory.
The recent increase in rates clearly impacted affordability, and that is no doubt keeping far too many buyers sidelined.
But – the “fear porn” that surfaces with every rate increase is also keeping buyers on the sidelines.
Per Fannie Mae, only 17% of consumers surveyed think now is a good time to buy – while 52% believed it was a good time to buy at this time in 2021.
That sentiment is clearly driven by unjustified fearmongering.
With respect to the onslaught of inventory – we are not seeing it and we won’t.
Inventory remains amazingly tight in most markets, despite so many buyers moving to the sidelines.
As I have reminded everyone several times now – we had 4 million homes for sale in 2007 prior to the meltdown, and we have less than 1 million homes for sale now (and even fewer if you remove “pending sales”).
In addition, the onslaught of foreclosures is very unlikely because underwriting standards are much stronger now and because borrowers have record levels of equity (factoids I repeat all too often).
And – I addressed “The Affordability Myth” in this recent blog.
When Will Rates Drop???
What clearly needs to happen – to lessen affordability concerns, to mitigate the fear porn, and to spur housing demand – is for rates to drop.
So why have they risen so much over the last month and when will they drop?
They rose largely in response to strong retail sales and employment data, and the Fed’s comments in regard to that data.
BUT – enter Stephanie Pomboy, another Macro Analyst I love because of her deep dives into data.
She was on this recent Wealthion podcast, pointing out that we are “being fed bogus data.”
She says the markets will sift through the data and realize that the economy is weaker than the Fed wants us to believe, and rates will fall as a result.
She says March 10th is a big date to watch, as that is when February employment data will surface with what is likely to be negative news.
As Jeff Snider reminds us over and over, the markets often respond to the Fed’s narrative in the short run, before figuring out what is really going on and then responding properly.
We saw this play out from October – February, as the Fed raised short-term rates 1.5% while long-term rates FELL over 1%.
So,
- We just need to be patient and wait for rates to drop again, as investors figure out the reality over the narrative;
- We need to educate borrowers about the housing market reality in the face of far too much “fear porn;” and
- We all need to ignore the narratives of both the Fed and fearmongers – and focus on the data (or focus on the pundits who focus on the data).
FINAL NOTE: JVM Lending has over 2,500 pre-approved borrowers in our pipeline, but only about 500 of them are actively looking. I can only imagine what will happen to the market if even half of those sidelined buyers come back.
Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
