Purchase Applications Take Another Hit

This morning’s mortgage application data showed that last week’s purchase applications are now down 42% on a year-over-year basis.

I honestly can’t remember a time when we experienced such a dramatic fall in purchase activity. This is deflationary and will continue to soften home prices which have already been getting battered in recent weeks.

One key point about recessions is that different industries go in and out of recessions at different times. The mortgage industry entered into a recession at the beginning of 2022. The real estate and housing markets, in my estimation, generally lag nine or so months behind.

Notably, it was about September when it because very clear that home prices were really starting to show weakness. Even the most recent housing data from Case Shiller that was reported yesterday was reflecting a time when buyers were closing mortgages with rates in the 4.5% -5% rate.

Just twelve short weeks ago that was the range at which people were locking. With rates since moving to 6.875% – 7.5%, the real estate recession will soon be deepening.

Mortgage bonds have improved dramatically over the past two days. As you can see on the graph, bond prices are now facing a couple of ceilings that could pose a challenge. If prices break above this ceiling, there is a lot of room for mortgage rates to improve. Generally, this is the time to lock. If you choose to float, watch the bond market closely and be prepared to pull the trigger.

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