LIVE MARKETS-Haunted housing: Borrowing costs ease, but borrowers remain spooked

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HAUNTED HOUSING: BORROWING COSTS EASE, BUT BORROWERS REMAIN SPOOKED

The midpoint of a fairly data-light week offered investors a housing chaser to follow Tuesday's downbeat housing starts and pending home sales data.

Today's weekly report from the Mortgage Bankers Association does little to change the outlook.

The glass-half-full crowd will note that the cost of financing home loans dipped a tad. The glass-half-empty folks, however, will be quick to point out that mortgage demand continued to sour anyway.

The average 30-year fixed contract rate USMG=ECI eased to 7.41% from 7.5%, its highest level since November 2023.

Even so, demand for loans to purchase homes USMGPI=ECI — considered a canary in the housing market coal mine — dropped by 7.3%. Refi applications USMGR=ECI — which accounted for a decreasing 39.0% share of the mortgage pie — slid 2.0%.

Combined, home loan demand slid by 5.3% last week.

"Lower rates were not enough to boost application activity, as both purchase and refinance applications continued to decline,” writes Joel Kan, MBA’s deputy chief economist. “Higher rates are pricing buyers out of the market."

“It is very clear that the higher mortgage rate environment has cooled the housing market this fall,” Kan adds.

The 30-year fixed rate has been soaring north of 6% since September 2022, and homebuilders and realtors have blamed it for the affordability crisis weighing on the sector, which is also bogged down by low supply, rising materials costs and economic uncertainty.

The rate is currently 1.04 percentage points hotter than it was during the same week a year ago.

Over that same period, purchase applications have dropped by 17.9%, while refi demand is now down 58.6%.

MBA's mortgage demand data, while fairly fresh, is still last week's news.

Housing stocks, on the other hand, are forward-focused, reflecting where investors expect the sector to be six months to a year in the future.

Through that lens, unfortunately, the prognosis is still lousy.

Both the S&P 1500 Homebuilding Index .SPCOMHOME and the PHLX Housing Sector Index .HGX breezily outperformed the broader market before the Iran war, after which the resulting global energy supply squeeze pushed Treasury yields higher, taking mortgage rates with them.

Since then, housing stocks have fallen out of favor.

So far this year, the SPCOMHOME and the HGX have dropped 9.5% and 10.2%, respectively, compared with the S&P 500's .SPX 12.7% advance.

(Stephen Culp)

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