RATES HIT MORTGAGES
Updated: Jun 7, 2018
This morning we received updated data for US mortgage applications. The reading suggests that higher rates are in fact hurting applications. As shown below, the 30-year mortgage rate now sits at roughly 4.6%, the highest level in nearly 7 years.
Higher rates have led to steady declines in weekly mortgage applications overall. This past week mortgage applications fell -2.6%, following a drop of -2.7% a week ago. Additionally, the sub-index for mortgage refinancing slipped -3.7%, highlighting the broader vulnerability within mortgage applications. Below we highlight how mortgage applications have now fell for 5 straight weeks, the most extended stretch since mid-2015.
The last chart I wanted to highlight is applications for mortgage refinancing as a percent of total mortgage applications. This reading peaked in 2012 and has decreased significantly. At 35.7%, refinancing is at the lowest level since 2008. We think there are two motivations to this.
First, mortgage rates bottomed in 2012 at around 3.38%. Hence, it has not been advantageous for most mortgage holders to refinance since.
Secondarily, there is a structural shift taking place as more millennials buy homes for the first time. Millenials are the most significant cohort of the population and therefore refinancing becomes less of an option overall.
Rates remain a key focus to me as it has substantial implications across housing, credit conditions, and consumption trends. We continue to preach that higher rates and sustained higher oil ("deadly duo") will begin to impact consumption habits in the back half of 2018, early 2019.
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Sean D. Emory
Avory & Co. Founder & Chief Investment Officer
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