LIVE MARKETS-Mortgage demand perks up as rates cool

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MORTGAGE DEMAND PERKS UP AS RATES COOL

Wednesday offered data geeks a solitary economic indicator courtesy of the Mortgage Bankers Association. At least it had the courtesy of being upbeat.

The cost of financing home loans dipped, enticing would-be borrowers from the sidelines.

The average 30-year fixed contract rate USMG=ECI shaved off 9 basis points to land at 7.21%. While still bruisingly high, that's the coolest it's been in a month and a half.

The move lower was rewarded by a 7.7% increase in demand for loans to purchase homes USMGPI=ECI — a measure widely viewed as a canary in the housing market coal mine. Refi applications USMGR=ECI slid 4.5%.

Combined, home loan demand rose by 6.2% last week.

In addition to cooling rates, credit conditions would appear to be easing.

"Mortgage credit availability ticked up in October after two months of declines, with greater availability of conventional credit,” writes Joel Kan, MBA’s deputy chief economist, in a note unrelated to today's mortgage demand data. “With current mortgage rates still elevated, lenders increased their offerings of ARM loans for lower LTV borrowers, including some that allow for cash-out refinancing."

"This also boosted the jumbo index, which was up to its highest level in three months,” Kan adds.

The 30-year fixed rate has been soaring north of 7% for the better part of two months, and above 6% for over four years. It has been blamed by homebuilders and realtors alike for the affordability crisis weighing on the sector, which is also bogged down by low supply, rising materials costs, record-high home prices and economic uncertainty.

The rate is currently 0.84 percentage points hotter than it was during the same week a year ago.

Over that period, purchase applications have dropped 18.2%, while refi demand is down 56.7%.

But 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, the outlook is showing signs of improvement.

Both the S&P 1500 Homebuilding Index .SPCOMHOME and the PHLX Housing Sector Index .HGX have underperformed the broader market since the onset of the Iran war, which caused energy supply pressures that morphed into hotter inflation. That pushed Treasury yields higher, dragging mortgage rates with them.

As a result, housing stocks fell out of favor.

But since mid-October, the sector's prognosis has grown less dire.

Year to date, the SPCOMHOME and the HGX are now off 0.7% and 2.2%, respectively, compared with the S&P 500's .SPX 9.9% advance over the same timeframe.

Just last month, the SPCOMHOME and the HGX were both down about 14% on the year.

(Stephen Culp)

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