It appears the laws of supply and demand have once again miraculously re-appeared - this time in the home mortgage market.
The average rate for a 30-year loan plunged to 5.3%, the lowest in a month and down from 5.7% last week. That is the largest weekly drop (40bps) since the Lehman collapse in 2008...
Judging by the total collapse in mortgage applications, it is clear that as the 'price' of loans rose (rates) then the 'demand' for loans evaporated. Simply put, if you were writing mortgages at such high rates (amid near record low levels of affordability) you are doing no business at all...
So you lower the price of the loan (rates) to encourage demand. With the 40bps crash in rates this week, it appears the fecal matter really hit the rotating object in the mortgage providers.
“Because of falling mortgage rates, homes may be more affordable than they were three weeks ago,” Holden Lewis, home and mortgage spokesperson at NerdWallet said in a statement. “There were few, if any, times you could have said that in the first half of 2022.”
Good luck with that idea. Rates are still up massively from levels a year ago - and home prices are at ever higher levels too.
At the current 30-year average, a borrower with a $300,000 mortgage would pay roughly $1,665 a month, about $383 more than at the end of last year, when rates hovered around 3.11%.
“While the drop provides minor relief to buyers, the housing market will continue to normalize if home-price growth materially slows due to the combination of low housing affordability and an expected economic slowdown,” said Sam Khater, Freddie Mac’s chief economist.
Of course, the big question is - Will Powell be pleased? Because prices are not really coming down much on the homes themselves (yet). This market-driven rate-cut stimulting demand is not what the inflation-battling folks in the Marriner-Eccles building are hoping for.