With purchase applications tumbling alongside the collapse in refinancings, the headline mortgage application data slumped to its lowest level since September 2000 last week.
This should not be a total surprise as Wells Fargo's latest results shows the pipeline is collapsing - a forward-looking indicator on the state of the broader housing market and how it is impacted by rising rates, that was even more dire, slumping from $67BN in Q2 to $57BN in Q3, down 22% Y/Y and the the lowest since the financial crisis.
But in the month since those results, mortgage rates have gone higher still... (this is now the biggest 2Y rise in mortgage rates since 2000)...
Sparking further weakness in the housing market...
And absent Xmas weeks in 2000 and 2014, this is the weakest level of mortgage applications since September 2000...
What these numbers reveal, is that the average US consumer can barely afford to take out a new mortgage at a time when rates continued to rise - if not that much higher from recent all time lows. It also means that if the Fed is truly intent in engineering a parallel shift in the curve of 2-3%, the US can kiss its domestic housing market goodbye.
And, as famed housing-watcher Robert Shiller recently noted, the weakening housing market is similar to the last market high, just before the subprime housing bubble burst a decade ago.
The economist, who predicted the 2007-2008 crisis, told Yahoo Finance that current data shows “a sign of weakness.”
“This is a sign of weakness that we’re starting to see. And it reminds me of 2006 … Or 2005 maybe,”
Housing pivots take more time than those in the stock market, Shiller said, adding that:
“the housing market does have a momentum component and we’re seeing a clipping of momentum at this time.”
The Nobel Laureate explained:
“If the markets go down, it could bring on another recession. The housing market has been an important element of economic activity. If people start to get pessimistic about housing and pull back and don’t want to buy, there will be a drop in construction jobs and that could be a seed for another recession.”
When reminded that 2006 predated the greatest financial crisis in a lifetime, RT notes that Shiller acknowledged that any correction would likely be far less severe.
“The drop in home prices in the financial crisis was the most severe drop in the US market since my data begin in 1890,” the Yale economist said.
“It could be that we’re primed to repeat it because it’s in our memory and we’re thinking about it but still I wouldn’t expect something as severe as the Great Financial Crisis coming on right now. There could be a significant correction or bear market, but I’m waiting and seeing now.”
Tick, tick, Mr Powell.