Higher mortgage rates continue to impact the housing markets

Rising rates continue taking their toll on mortgage demand. Diana Olick joins us with the latest data. Let's see, lowest since 1996 now, Diana, I think. We keep setting new lows, Kelly. Mortgage rates, though, actually held steady today following the release of the CPI data. That's because it came in right along expectations. So not much change in the expectations of what the Fed will do. That said, the average rate on the 30-year fixed is sitting at 7.25%, according to Mortgage News Daily. And rates have now been over 7% since late July. That's the longest period that they've held at that level in 22 years. So it's no wonder mortgage demand has fallen off a cliff. Total application volume is now sitting, as you said, at the lowest level since 1996. Refi demand is next to nothing because there are very few borrowers who have rates higher than today's and could therefore benefit. In fact, refis now make up just 10% of all originations, that according to Black Knight. Cash out refis, no longer worth it because to get the cash, you have to trade up to a much higher rate. Applications for a mortgage to buy a home were 27% lower than they were a year ago. And while that has all to do with higher mortgage rates, it also has to do with low inventory and home prices, which, would you believe, are back on the rise again. And just to add fuel to the fire, mortgage credit is tightening as well. We're seeing that in higher overall credit scores and higher down payments. Guys? Stick around as we bring in Danielle Hale, chief economist at realtor.com. Danielle, welcome. Good to have you with us. As Diana just pointed out, it's kind of a curious phenomenon. You've got interest rates at highs and sticky highs, not seen in 20-some years, but you've also got prices continuing to rise, presumably because supply is so low. There's not a lot of cracking going on in the prices of houses, is there? No, not really. And you're right, buyer demand is low, but supply is even lower, and that's keeping prices elevated. We did see a bit of a pullback this summer. So prices dipped on a year-over-year basis in June and July in our data. But in August, they were back up compared to a year ago, and other measures are sort of moving similarly. Prices are roughly staying flat at recent highs despite high mortgage rates, and that's creating some affordability challenges for buyers keeping demand low, but not as low as supply, because many existing homeowners, like Diana mentioned, have mortgage rates that are much lower than today's, and so moving is a very expensive proposition for an existing homeowner today. Yeah, you don't want to give up your 3% mortgage and exchange it for a 7% mortgage. Danielle, what do you expect or anticipate in the fall, which is traditionally a kind of dormant season for home buying and selling, because people are where they sort of want to be. They don't want to move around the holidays and so forth or in the dead of January. Yeah, so for shoppers who've been frustrated by the spring and summer market, it has still been relatively competitive because supply is so low. Fall tends to offer a bit of a break. The best time to buy in 2023 is that first week of October. So prices ease seasonally. Buyer demand tends to ease seasonally, and these seasonal cycles in the real estate market are a bit more predictable than mortgage rates have been. So you don't necessarily have to wait for mortgage rates to change, but you can take advantage of that cycle in the housing market, especially if you've been shopping for a while and have been frustrated by what's available in the market. I think that's what- And I would- Yeah, go ahead. I was gonna say, and adding to that, in our August data, and new listings are still down on a year-over-year basis, but they did tick up from July to August, which is not a seasonally normal trend. It is a bit of surprise, and it does suggest that maybe some homeowners are capitulating to this high-rate environment and just making moves that they have perhaps delayed before things get worse. Yeah, what's fascinating, Diana, as well, is to think that the best way to get home prices down would probably be for the Fed to cut rates, because then all of a sudden you probably have a lot of people saying, okay, now I don't mind moving and taking on that new mortgage. So it's kind of a reversal of what we usually see. Yeah, it is. And look, there are a lot of homeowners out there right now who might've been worried about those higher rates and trading up, but they also might be thinking prices are starting to rise again and I might be able to make more on my house and could this be the top of the market. That may be why they're jumping in, as well. But I also have to think that rents are playing a factor in all of this, and that is that we're seeing apartment rents really start to cool off dramatically as we see more of this supply come onto the market, and that's reducing the number of homebuyers out there because they're seeing this incredibly pricey market and saying, all right, my rent's not as bad as I thought it was gonna be, or at least it's not going up as it has been over the last couple of years. Maybe I'll wait this out a little bit. So I think that dynamic is gonna play out quite a bit in the fall, and I do wonder, as we see inflation, if it starts to cool off at all, that we would potentially see rates come down and that's really gonna start to move this market because there's so much pent-up demand out there. Danielle, I'm not sure you have this on the top of your head, maybe Diana does, but I'll ask you first, Danielle, what does the composition of the mortgage market look like? In other words, are more people taking adjustables than was the case a couple of years ago? I can only imagine that it is. Yeah, that's a good question. So I haven't looked at the data super recently, but yes, the last time I looked at the data, adjustable rate mortgages were a bit higher than they had been over the past couple of years, but because the likelihood of rates falling is higher than it has been over the past couple of years, but at the same time, the price savings, so the rate savings that you get from taking on an adjustable mortgage has declined, and so I don't know, Diana, you may know the recent numbers better than I do. Diana? Yeah, actually, they're up around seven, seven and a half percent right now, and in the last week, the adjustable rate share of mortgage demand did rise, and that happens every time you see mortgage rates go up. Just as a comparison, we were seeing the adjustable rate mortgage share back in 2020 when interest rates were around 3%. That share was barely 2%, so you've pretty much tripled in the course of the last two years because of those higher rates. Danielle, Diana, thank you very much. We appreciate your time today.