Have We Turned The Corner?

(Hollywood, FL) — For sure, the housing and lending markets have had a rocky road in 2022. The highest inflation rate in 40 years, rising interest rates, skyrocketing home prices, and a persistent housing shortage have all contributed to a downturn in the housing and mortgage sectors.

Signs of Improvement?

But within the last few weeks, there have been some positive indicators that suggest we may be finally turning the corner. Of course, it’s early and we will need to see more evidence to know for sure where things stand, but there may be reasons to be cautiously optimistic that market pressures are easing. There may be some welcome light at the end of our tunnel.

• Inflation. Quite unexpectedly, U.S. consumer prices fell in August, the first drop in six months. According to the Bureau of Labor Statistics, the consumer price index, or CPI, rose 8.5% over the past year as of July, a marked slowdown from 9.1% in June. This was primarily due to a decrease in food and energy prices. While still elevated, the decline of consumer price hikes from its near-record pace in June gives hope to policymakers and consumers that inflation may have peaked.
• Interest rates. As of August 11, the average rate for the benchmark 30-year fixed mortgage is 5.60%. Though that is significantly higher than what rates were a year ago, it is down considerably from the 52-week high of 6.11%. Though we expect that rates might continue to fluctuate for a time, there is reason to believe that interest rates may have topped out.
• Housing. Earlier in the year when available homes were exceptionally scarce, homebuyers were participating in outlandish bidding wars, driving up home prices to extreme levels. However, according to realtor.com, active listings jumped 128,200 in July to 747,500. That’s the single biggest jump in the site’s database since 2016.

What does it all mean?

What we can infer from this is that the housing market is beginning to cool off. As housing inventory increases, home prices will begin to come down, bringing more buyers into the market. We are already witnessing this effect in certain parts of the country.

All of these factors are contributing to a slight increase in mortgage demand. According to the Mortgage Bankers Association (MBA), mortgage applications rose slightly for the second week in a row. MBA’s Market Composite Index for the week ended August 5 increased 0.2 percent on a seasonally adjusted basis.

Surprisingly, much of this increase was attributed to an increase in refinancing. TheRefinance Index was up 3.5% from the previous week, itslargest gain since early June. Refinance applications constituted 32.0% of the total received during the week.

Of course, we are not out of the woods yet and given the massive economic disruptions that the pandemic induced, it might be a while before normalcy is fully restored. But I do believe there are encouraging signs that the worst might be behind us and brighter days lie ahead.