Mortgages Slip, New Car Sales Slide in August
MBA reports the fourth week in a row of falling applications, while BEA reports new car sales were flat in August.
Mortgage applications fell and new cars moved sideways in August — a headwind for the credit union movement, which has half its balance sheet in those loans.
On Wednesday, the Mortgage Bankers Association reported that its Market Composite Index of mortgage applications for the week ending Sept. 2 fell 0.8% on a seasonally adjusted basis from a week earlier. It was the fourth week in a row of declines in the measure.
On Friday, the U.S. Bureau of Economic Analysis reported that new cars and light trucks sold at a seasonally adjusted annual rate of 13.2 million in August, down from 13.3 million in July and up from 13.1 million in August 2021.
Callahan & Associates, the Washington, D.C. credit union company, reported Aug. 31 that credit unions originated $90.5 billion in real estate loans in the three months ending June 30, up 7.9% from the first quarter, but down 3.1% from a year earlier.
The MBA estimated that total originations for the second quarter were $678 billion, down 35% from a year earlier.
Mike Fratantoni, the MBA’s chief economist, said higher interest rates caused both purchases and refinances to fall last week.
The MBA’s seasonally adjusted Purchase Index fell 1% from one week earlier, and its unadjusted component was 23% lower than the same week one year ago.
The Refinance Index, which is unadjusted, fell 1% from the previous week and 83% from a year ago. Refinances were 30.7% of total applications, up from 30.3% the previous week. Refinances started the year at 65% of applications.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.94% from 5.80% a week earlier. It stood at 2.86% at the end of 2020 and 3.33% at the end of 2021.
“Recent economic data will likely prevent any significant decline in mortgage rates in the near term, but the strong job market depicted in the August data should support housing demand,” Fratantoni said.
“There is no sign of a rebound in purchase applications yet, but the robust job market and an increase in housing inventories should lead to an eventual increase in purchase activity,” he said.
Credit unions have had “eye-popping” gains in auto loans this year that far exceeded CUNA’s forecasts, CUNA Chief Economist Mike Schenk said in a recent Economic Update video.
CUNA showed credit unions held $164.4 billion in new car loans on June 30, up 14.9% from a year earlier, while used cars grew 17.6% to $296.3 billion.
NAFCU Chief Economist Curt Long said new car monthly sales were 0.7% higher than a year ago, and prices for both new and used cars continued to rise.
“Prices remain red-hot as global and domestic production continues to be constrained by chip shortages,” Long said. “Using dealership data, CoPilot found that on average used cars are commanding a $10,000 premium when compared to pre-pandemic price trends.”
Long cited Cox Automotive’s Kelly Blue Book, which showed July’s average new-vehicle transaction price is the highest on record.
Domestic production fell in July, but it was 10.4% higher than the same month in 2021.
“On the supply front, AutoForecast Solutions found 32,900 vehicles were cut from global production last week alone,” Long said. “But plenty of buyers are unwilling or unable to wait any longer, and credit unions should continue to fare well with used auto loans despite the higher rate environment.”