Loan applications uptick, GDP stats bode well for housing industry
Market analysts reacted to a pair of reports released Thursday that bode well for the housing industry – giving rise to a scenario featuring lowered mortgage rates and a healthy spring buying season.
The Mortgage Bankers Association (MBA) released its weekly mortgage applications survey for the week ending January 19 that showed a 3.7% increase in mortgage loan application volume. The survey covers more than 75% of all US retail residential mortgage applications – from mortgage bankers, commercial banks and thrifts – and has been conducted weekly since 1990.
“Mortgage rates rose slightly last week, but that didn’t slow the mortgage market’s momentum to start the year,” MBA’s president and CEO, Bob Broeksmit, said. “Applications increased for the third straight week, with purchase activity jumping 8%. Along with the expectation that rates will continue to decline slowly, recent data on homebuyer sentiment and pending home sales are positive signs heading into the spring.”
Joel Kan, MBA’s vice president and deputy chief economist, echoed the sentiments: “Mortgage rates increased slightly last week, but there continues to be an upward trend in purchase activity,” he said. “Conventional and FHA purchase applications drove most of the increase last week as some buyers moved to act early this season.”
Strong GDP numbers add to the celebratory vibe
The Bureau of Economic Analysis released the gross domestic product (GDP) numbers for the fourth quarter, showing a 3.3% growth that exceeded Wall Street expectations of a more modest expansion of 2%. The report outlined good news on the inflation front and strong consumer spending – metrics that will prompt the Fed to cut short-term interest rates by May.
“Consumers continued to spend on both goods and services,” CBRE analysts said. “Business investment was generally strong across the board, with notable spending on structures. Government spending also was strong. On the inflation front, the Core Personal Consumption Expenditures Price Index Price Index met the Fed’s 2% target in Q4 on a quarterly basis.”
In light of that news, CBRE provided a forecast: “While core inflation fell in Q4, jobless claims from a week ago were higher than expected. This illustrates the balance of risks that the Fed must consider going forward. As such, we anticipate the Fed will cut the federal funds rate by May. Amid slowing growth and rate cuts, we anticipate the 10-year Treasury yield will slowly decline, ending the year at 3.6%. A very rare soft landing for the economy seems most likely.”
Mike Fratantoni, the chief economist for the MBA, offered his take.
“Economic growth remained strong in the fourth quarter, bolstered by solid consumer spending on both goods and services,” he said. “The pace of growth slowed from the third quarter, but at 3.3%, it remained well above the sustainable long-run trend growth rate of about 2%. This pace of growth is consistent with the persistent strength in the job market. The unemployment rate remains quite low, and job growth has repeatedly come in faster than expected.”
The numbers bode well for the housing market, he added: “Stronger economic growth will benefit the housing market, keeping demand robust. Moreover, today’s report also showed further reductions in inflation, which will enable the Federal Reserve to cut rates later this year – as they have been hinting.”
With the sober analysis expected of an economist, Frtantoni resisted the urge to trash 2023 as so many have: “For the broader economy, 2023 was a much better year than we had expected, even as the housing and mortgage markets were stuck in the doldrums,” he noted. “While we still anticipate that the economy will slow in 2024, this strong momentum in the fourth quarter makes a precipitous decline less likely. A path for lower rates should help housing markets.”
Would-be homebuyers urged to act now
Charles Williams, CEO of Percy, spoke to the broader market. His oversees a market intelligence-driven engagement tool for real estate brokers and mortgage lenders using machine-learning to deliver intelligence on consumer behavior and homebuying intent.
“There are several nuggets of positivity in the market currently,” he said. “Fundamentals are generally improving across the board, and we expect homebuying activity to continue to pick up through the year as 30-year mortgage rates will likely close out at around 6%.”
Given the improving landscape, he urged would-be homebuyers to act soon: “Home prices are likely stabilizing as well, so smart homebuyers will get in on the market ASAP, as the average monthly mortgage payment is not going to get that much cheaper in the months ahead.”
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