Couple snips:

Weekly mortgage demand from homebuyers tumbles 12%, as higher interest rates take their toll

And, later:

Mortgage applications to purchase a home declined 12% week to week and were 15% lower compared with the same week one year ago. That was the first weekly drop in homebuyer demand since the third week in April.

Both of those statements are structured as <measured decline in transactional activity> followed by <this is due to less demand>, without anything in the world connecting the two.

They are measuring “mortgage applications,” and assuming it equates to “homebuyer demand.” Which intuitively makes sense, aside from not capturing cash buyers it seems like it’s a “good enough” proxy measure.

But, as always, it bears pointing out that pre-applying for pre-approval isn’t captured in these statistics. They are measuring mortgage applications, and applications need 6 pieces of information, one of which is the property address.

As housing wire puts it: “To be considered a true application for a mortgage loan, a borrower must submit six key pieces of information to their potential creditor either written or electronically. […] item 4) the property address […]”

In the normal course of events (this isn’t a discussion about legal theory, it’s a discussion about what actually gets captured in the actual statistic in question, most of the time), mortgage loan originators take the property address right off of the ratified purchase contract. And don’t otherwise want to see it or type it into their computer systems. I’ll let you fill in the blanks here, but 20 people looking at 123 Banana Street and requesting 20 updated preapproval letters to write 20 offers on it does not typically result in 20 MLOs registering 20 mortgage loan applications with the gov’t, it typically leads to ONE registered mortgage loan application, for the ONE person who had their offer accepted (you can easily verify this by looking at the number of HMDA “application” records, they are approximately equal to the number of purchases and refinances, plus a few that wound up being denied, but they aren’t 15x or 20x, even if you look at a “hot market” like say San Jose where you know everything had 15 or 20 offers).

That means a decline in mortgage “applications” may or may not represent a drop in demand. It could represent a drop in supply, for example if there’s fewer houses for sale, that means naturally fewer ratified contracts, and thus the statistics could very well reflect a “12% drop in mortgage applications,” without any drop in demand at all. Or it could be both. Who knows. But the main point here is that mortgage “applications” merely measure transactional activity (which is what folks like me care about), they don’t tell you anything either way about the relationship between supply and demand (which is what your typical buyer or seller primarily cares about).

What we can actually conclude from that data is that there are ballpark 12% less real estate transactions (again, this still leaves out cash buyers, but it’s “good enough). I’ve commented before that the low rates followed by suddenly higher rates could potentially create a liquidity issue (“who wants to swap out their current 2.75% for the 5.5% that a new house would come with?”), which is it’s own distinct form of issue, neither a “real estate is booming” issue, nor a “real estate is imploding” issue, but a “it’s a lot fucking harder to transact at all, either way, on either side” issue. If you’re thinking of selling, then you’ve got to contend with giving up your 2.75% for 5.5% on the new house, and if you’re thinking of buying then you have to offer that seller enough to convince them to give up that 2.75%, or they can just sit tight and not sell at all. Marketplaces are comprised of willing buyers and willing sellers sloshing things around, trading, swapping, and all that. We’re moving into an era of less of that, and more people staying put, I think.

The biggest threat here isn’t to home buyers or sellers, it’s to those of us that are compensated on a per transaction basis. That’s yours truly, that’s realtors, that’s title, that’s escrow, that’s appraisers (& queue the “good, fuck those per transaction people, I hate them all” comment :P). Fun fact on appraisers: before 2022, not a single time had an appraiser called me for business, not a single time, literally zero. Now all of a sudden it’s a thing for appraisers to cold call me soliciting appraisal business, only a trickle, at once a week or so, but that’s a huge uptick from “never, not a single time.”

EDIT: can’t update threat title, or would add “…from transaction volume” to the end.

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