Mortgage applications fall – The Daily Tearsheet

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are down.

Mortgage applications fell 5.1% last week as purchases fell 5.1% and refis fell by the same amount. “Mortgage rates jumped to their highest level since February last week, with investors concerned about rising inflation and the impact of increasing deficits and debt,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Higher rates, including the 30-year fixed rate increasing to 6.92 percent, led to a slowdown across the board. However, purchase applications are up 13 percent from one year ago.”

I have been seeing this graph make its way all around social media. It is comparing housing affordability today versus 40 years ago and it implies that things are much worse today.

Incomes went up 3x, while house prices rose nearly 6x, ergo affordability is much worse today. Well, the median house price to median income ratio is one way to look at it, but that analysis completely ignores the effect of interest rates.

In 1985, the average mortgage rate was 12.4%. In 2022, it was 5.3%. If you calculate the annual principal and interest payment (20% down) and divide it by median income, you arrive at a different narrative.

In 1985, the annual principal and interest payment was 36% of median income, while in 2022 it was 34%. So affordability was worse in 1985 than 2022 when you look at housing costs as a percent of income.

I think the Median HP to Median Income ratio is not the best measure of housing affordability. As any car dealer will tell you, people don’t buy a car based on the sticker price, they buy on the monthly payment.

____________________________________________

Consulting Services for mortgage bankers:

Struggling to find the support you need? Imagine having instant access to the exact skills you need—no headaches, no delays. Whether you need:

• Short-term, full-time roles (e.g. building a BI dashboard or resolving a compliance issue)
• Fractional expertise when you don’t have enough hours for a full-timer (e.g. corporate recruiting, project managers)
• Permanent hires that you can’t seem to find (e.g. FP&A analysts, data analysts)

Augment Analytics provides talented analysts and risk-management professionals—most with long histories at Capital One—as staff-augmentation resources at hourly rates only a fraction above the cost of a full-time hire. And best of all, your commitment is purely hourly; no long-term contracts dragging you down.

We’re confident our resources will meet your standards: In our history, 96% of consultants have been extended at least once by their clients. Learn more by reaching out to Brett Ludden at brett@augmentanalytics.us.

___________________________________________

Fed officials have been advising investors not to count on a June rate cut. Atlanta Fed President Raphael Bostic said: “There’s a lot of uncertainty. I think we’ll have to wait three to six months to start to see where this settles out,” Bostic said.

New York Fed President John Williams said: “It’s not going to be that in June we’re going to understand what’s happening here, or in July,” Williams said, according to Bloomberg. “It’s going to be a process of collecting data, getting a better picture, and watching things as they develop.”

The Fed Funds futures now see only 2 rate cuts this year.