• Market Crumbs

Homebuyers Step Back Amid Low Mortgage Rates

Image via Tierra Mallorca on Unsplash

Mortgage rates in the U.S. continue to fall to record lows. The average contract interest rate for a 30-year fixed-rate mortgage fell to a record low 3.14% last week compared to 3.20% the previous week.

Despite record low rates, potential homebuyers are becoming less active as total mortgage application volume fell 5.1% from the previous week according to the Mortgage Bankers Association's seasonally adjusted index.

Refinance applications dropped 7% last week but remained 84% higher than the same period a year ago. Mortgage data and analytics firm Black Knight calculates that nearly 18 million borrowers could still benefit from refinancing their mortgage. Applications to purchase a home dropped 2% last week and now stand 22% higher than the same period last year.

With the average purchase loan amount rising, fears are growing that some first-time homebuyers are getting priced out of the market.

"Purchase loan balances continued to climb, which is perhaps a sign that the still-weak job market and tighter credit for government loans are constraining some first-time homebuyers," MBA forecaster Joel Kan said.

Another sign that first-time homebuyers may be stepping back is the average rate for a FHA-backed 30-year fixed-rate mortgage has started to increase. These types of mortgages accounted for 35% of closed sales in June, according to the National Association of Realtors.

Home prices continue to rise as low rates and tight supply pushed the average median home price in July up 8.5% from the same period last year to $349,000, according to realtor.com‘s Housing Recovery Index. 48 of the 50 largest metros areas in the U.S. saw the median listing price jump in July compared to last July.

Inventory dropped by 34.8% in July from the same period a year earlier as none of the metro areas realtor.com tracks saw an increase in inventory. Inventory is going quicker than in June, when inventory dropped by 26.5% from the previous year.

Perhaps confirming the fears over the effects of the coronavirus on city living, condos are faring much worse than single family homes. The median condo sale prices in the U.S. fell by 1.4% in June compared to the same period last year. Condo sales fell by a seasonally adjusted 31.3% in June and 53.5% in May compared to last year, while single family home sales fell by 11.9% and 27.6% in June and May, respectively.

"The pandemic has fundamentally changed what a lot of buyers are looking for in a home," Redfin economist Taylor Marr said. "People are spending more time at home and less time at the office or school, and that means buyers want more space and private yards. And because of concerns about the virus, they aren't as interested in shared amenities like elevators, community pools and gyms, which have traditionally been benefits of condo living."

It will be interesting to see where the housing market goes from here as a mixture of low rates and inventory, high prices and an uncertain economy all work against each other.

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Leftover Crumbs

  • Job rebound slows. Private payrolls increased by 167,000 in July, well below the estimate of one million jobs created, according to ADP and Moody's Analytics. Payrolls growth was seen at companies with fewer than 50 employees and large companies, while businesses with between 50 and 499 employees saw a decline of 25,000 jobs. June's total was revised higher but still barely puts a dent in the nearly 20 million jobs lost in March and April. All eyes will now be on Friday's nonfarm payrolls report which is estimated to show nearly 1.5 million jobs added in July.

  • Chinese gaming giants to merge. Tencent is reportedly pushing to merge China's two largest game streaming platforms Douyu and Huya. Tencent owns more than a third of Douyu and is the majority shareholder in Huya. A merger of the two companies, which have a combined market capitalization of $10 billion in the U.S., would create a company with a combined market share of more than 80% in China.

  • Digital overtakes print at NYT. Digital, which includes news and podcasts, has overtaken print at The New York Times for the first time in the company's history. The NYT launched its digital-only subscription plan in 2011 to reduce dependence on advertising dollars. The NYT also warned that advertising revenue will continue to show weakness. "We posted our best-ever results for new digital subscriptions, and for the first time in our history total digital revenue exceeded print revenue," NYT CEO Mark Thompson said.

  • Instagram launches Reels. Instagram has launched its Reels feature, which is similar to TikTok, in more than 50 countries. Reels lets users film short-form videos that can be shared and discovered in the app. Instagram’s product director Robby Stein addressed concerns the feature is a copy of TikTok. "I think TikTok deserves a ton of credit for popularizing formats in this space, and it’s just great work," Stein said. "But at the end of the day, no two products are exactly alike, and ours are not either."

  • Google engineer sentenced to 18 months. Former Google engineer Anthony Levandowski was sentenced to 18 months in prison for what the judge called the "biggest trade secret crime" he's seen. Levandowski faced trial for allegedly stealing 14,000 documents from Google's Waymo before taking a job at Uber. Uber and Waymo settled while Levandowski filed for bankruptcy after being ordered to pay $179 million to Google. The judge said Levandowski can enter custody once the pandemic has subsided. "Today marks the end of three and a half long years and the beginning of another long road ahead," Levandowski said.