Mortgage Costs Sizzling, Volume Shriveling as Summer Starts

Mortgages continue to be less affordable for consumers and less profitable for originators, the Mortgage Bankers Association stated in a series of reports in recent days.

It was another bad week for mortgage trends, starting with a Census Bureau report Tuesday that new single-family houses sold at a seasonally adjusted annual rate of 591,000 in April, down 16.6% from the revised March estimate of 709,000. And March was 10.5% lower than February.

Curt Long, NAFCU’s chief economist and vice president of research, said while the total number of homes for sale grew by 8.3% in April to 444,000, only 38,000 of those homes are complete.

“The supply chain and labor shortages are delaying the completion of homes and continuing to limit the supply of completed new homes relative to demand,” he said. “Median prices continue to advance, reflecting a market that is still undersupplied despite the pullback in demand.”

Long said he expects new home sales to be volatile in the near term as the market finds equilibrium. He said sales aren’t likely to fall too far “given the strength of household finances and the fact that there is still unmet demand in the market.”

“Rising rates and high prices are putting the brakes on a market that had significant momentum just a few months ago,” Long said.

On Thursday, the MBA reported that homebuyer affordability decreased in April, with the national median payment applied for by applicants rising 8.8% to $1,889 from $1,736 in March.

Edward Seiler, the MBA’s assistant vice president for housing economics, attributed the greater payment burden to rapid home-price growth, low inventory and an 80-basis-point surge in mortgage rates. The typical borrower’s principal and interest payment rose by $153 from March and $569 from a year ago.

“Despite strong employment and wage growth, housing affordability has worsened since the start of the year,” Seiler said. “Mortgage payments are taking up a larger share of homebuyers’ incomes, and sky-high inflation is making it more difficult for some would-be buyers to save for a down payment or come up with the additional cash they need to afford a higher monthly payment.”

The MBA’s May 16 forecast called for mortgage rates to remain above 5% for most of 2022, but Seiler said prospective homebuyers should start to see moderation from the double-digit price appreciation reported for well over a year in most of the country.

On Wednesday the MBA reported that mortgage applications for the week ending May 20 fell a seasonally adjusted 1.2% from the previous week, which followed a weekly decline of 11% for the week ending May 13.

The seasonally adjusted Purchase Index rose 0.2% for the week ending May 20, after falling 12% the previous week.

Joel Kan, the MBA’s assistant vice president of economic and industry forecasting, said the 30-year fixed rate fell for the second week in a row to 5.46%, but it’s still well above the low rates of the past two years. Refinance activity is a third of what it was in January.

“Higher mortgage rates are also impacting purchase market conditions, as the purchase index remained close to lows last seen in the spring of 2020 when a significant portion of activity was put on hold due to the onset of the pandemic,” Kan said.

“Currently, higher rates, low inventory and high prices are keeping prospective buyers out of the market,” he said.

The National Association of Realtors reported May 19 that existing home sales fell in April for the third month in a row under the weight of higher prices and rising mortgage rates.

On Tuesday, the MBA reported that mortgage originators reported making less money in the first quarter. Independent mortgage banks and bank mortgage subsidiaries reported net gains of $223 on each mortgage they originated in the first quarter, down from $1,099 in the fourth quarter.

Marina Walsh, the MBA’s vice president of industry analysis, said average pre-tax net production income was only 0.05% — the lowest since the fourth quarter of 2018 and well below the quarterly average of 55 basis points dating back to 2008.

“It was a challenging mortgage market environment in the first quarter of 2022, with rising mortgage rates and low housing inventory resulting in lower production volume,” Walsh said.

“While lower production revenue contributed to scant profit margins, the primary driver was cost, with total loan production expenses ballooning to a new study-high of $10,637 per loan — up more than $1,000 per loan from fourth-quarter 2021 and more than $2,500 per loan from one year ago,” Walsh said.

Credit unions originated $83.8 billion in real estate loans in the first quarter, only 0.2% more than they did in 2021’s first quarter. Other loans rose 11.1% to $109 billion, Callahan & Associates reported May 18.

The MBA’s May 16 forecast expected lenders will originate $1.69 trillion in purchase originations this year, up 2.9% from 2021. Purchase originations are expected to rise 3.1% to $1.75 trillion in 2023.