Volume 116 | November 17, 2022

Guardian Asset Management

Weekly Newsletter

Guardian endeavors to provide you with the latest in housing, industry and market news from Washington D.C. and around the country. It is our goal as your industry partner to be informative, relative and topical.

From the General

Counsel's Desk

How Inflation and Recession Fears Impact Housing

Is buying a house right now a ridiculous venture?

With interest rates surging to 20-year highs and affordability strained, the vast majority of borrowers think so, according to Fannie Mae. However, going against the grain could be your ticket to homeownership, mortgage expert Shivani Peterson explains.

A new insight blog post by First American Economist Ksenia Potapov examines the balance between foreclosure and employment and questions whether or not the impact of a near-term recession on the labor market will cause a rise in foreclosures. 

According to Potapov, early, proactive policies early in the pandemic both prevented early mass foreclosures due to lockdowns and caused concerns of a wave of foreclosures after those protections end. That wave of foreclosures never came to fruition, and in fact still remains near historic lows. 

Monetary policy tightening and interest rate hikes by the Federal Reserve to lower inflation back to a target 2%, it is causing the housing market to “rapidly cool” and will more than likely will be followed by a cooling labor market. 

Rising Mortgage Rates Put Damper on Home Purchase Mortgage Applications

October mortgage applications for new home purchases fell by 13 percent from September and by 28.6 percent from a year ago, the Mortgage Bankers Association reported Thursday.

The MBA Builder Application Survey reported by product type, conventional loans composed 68.6 percent of loan applications; FHA loans composed 20.1 percent; RHS/USDA loans composed 0.3 percent; and VA loans composed 11 percent. The average loan size of new homes decreased from $406,767 in September to $400,616 in October.

“New home purchase activity weakened on a monthly and annualized basis in October, as the sharp jump in mortgage rates to nearly 7 percent reduced both overall demand and the purchasing power for many prospective buyers,” said Joel Kan, MBA Vice President and Deputy Chief Economist. “The moderation in loan amounts is attributed to slower home-price growth and buyers stepping away from higher-priced homes.”

The number of new housing units started in October continued to decline, a reflection of the continued downward spiral in homebuilder sentiment, dropping 4.2% from September to a seasonally adjusted annual rate of 1.425 million, according to a report released Thursday by U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

October’s annual housing start rate was down 8.8% on a year over year basis, according to the report. These declines come after a sharp monthly drop of 8.1% in September.

“October was a challenging month with disappointing inflation data — though more recent readings have been more positive — and soaring interest rates. It is no surprise that home building activity reverted back to a downward trend, though the drop was not as severe as it was expected to be,” Nicole Bachaud, Zillow’s economist, said in a statement.

Decreases in both single family and multifamily homebuilding contributed to the slower pace of building, with the single-family sector posting a 6.1% monthly decline and the multifamily sector falling 0.5% from the month prior.

Steep Drop In Mortgage Lending Continues

cross U.S. In Third Quarter,

Hitting Three-Year Low

ATTOM, a leading curator of real estate data nationwide for land and property data, today released its third-quarter 2022 U.S. Residential Property Mortgage Origination Report, which shows that 1.97 million mortgages secured by residential property (1 to 4 units) were originated in the third quarter of 2022 in the United States. That figure was down 19 percent from the second quarter of 2022 – the sixth quarterly decrease in a row – and down 47 percent from the third quarter of 2021 – the biggest annual drop in 21 years.

The continued decline in residential lending resulted from double-digit downturns in both refinance and purchase loan activity that far outweighed another increase in home-equity credit lines.

Homebuilders and economists alike were on edge this spring after the Federal Reserve Bank of Dallas published a paper titled "Real-Time Market Monitoring Finds Signs of Brewing U.S. Housing Bubble."

Shortly afterward, Fortune spoke with Dallas Fed economist Enrique Martínez-García. He had a stern warning.

“This might be a housing bubble. The evidence suggests it looks like a housing bubble. A little bit like a duck. It walks like a duck, it looks like a duck, it certainly might be a duck,” Martínez-García told Fortune in May. "[It's time to] raise awareness to the potential risks [that] housing poses.”

Fast-forward to November, and it's no longer taboo to throw out the term "bubble." Not only has the Federal Reserve's inflation fight created a sharp contraction in home sales, it has set off a home price correction. The bubbliest markets, like Phoenix and Boise, are already down close to double digits.

Rent growth slows to the lowest level in 18 months

The red-hot rental market is finally starting to cool off along with the rest of housing.

Rents are still higher than they were a year ago, but the gains are shrinking, as landlords lose pricing power in the face of inflation.

Rents in October rose 4.7% compared with October 2021, the slowest annual increase in 18 months, according to Realtor.com. The U.S. median rent was $1,734.

“Our data indicates that we are finally starting to see a bit of relief from the double-digit pace of rent growth that we experienced during the height of the pandemic,” said Danielle Hale, chief economist at Realtor.com. “While it’s still a bit early to say that we’re officially on a downward trajectory for rent prices, the data shows a promising return toward normal seasonal slowdowns and suggests that the astronomical price gains of the past several years may be behind us.”

A fall survey by Realtor.com found that despite more tenants struggling to afford the rent, the majority of landlords still said they would continue to increase rents over the next year — although by a smaller margin than they have recently.

The average long-term U.S. mortgage rate tumbled by nearly a half-point this week, but will likely remain a significant barrier for potential homebuyers as Federal Reserve officials have all but promised more rate hikes in the coming months.

Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate fell to 6.61% from 7.08% last week. A year ago the average rate was 3.1%.

The rate for a 15-year mortgage, popular with those refinancing their homes, fell to 5.98% from 6.38% last week. It was 2.39% one year ago.

Late last month, the average long-term U.S. mortgage rate breached 7% for the first time since 2002.