If You Or Someone You Care About Is Purchasing A Home Soon You Need To Know This. The Buyer/Seller Dynamic Continues To Shift In The Real Estate Market | (1.5.22)
“The secret of change is to focus all of your energy not on fighting the old, but on building the new” -Socrates
What You Need To Know Today:
• It is to be expected that the holiday season will take a toll on mortgage application volume each year, but according to the Mortgage Brokers Association (“MBA”), this year was particularly rough. The MBA Market Composite index, which measures applications taken by mortgage originators, including commercial banks, thrift institutions, and mortgage banking companies, decreased by 13.2% on a seasonally adjusted basis and fell on an unadjusted basis 39.4% in December.1 Meanwhile, the Refinance Index decreased by 16.3% in the first two weeks of December alone and was down (-87%) from the same weeks last year. Given the run-up of rates in 2022, a massive reduction in refinancing applications is to be expected, however, mortgage applications in general (including purchases) have declined to the lowest level since 1996 (see the blue portion of the graph below representing the purchase index). With that said, there is a massive silver lining for buyers who are in the market — the tides continue to shift in their favor and less competition means more leverage during negotiations! This is a somewhat “golden opportunity” for those who struggled to receive an accepted offer in 2022.
TL;DR — Mortgage application volume is down to levels not seen since 1996. Positioning for active buyers is improving by the day.
• ADP released its updated employment report which showed 235,000 job creations in December completely blowing the pre-release forecast of 150,000 out of the water. This figure was driven by a significant gain for both small and medium-sized businesses which added just under 200,000 jobs each but was drug down by large businesses which cut jobs by (-150,000).2 At the surface level, this might seem like a positive thing — more new jobs were added than expected…woohoo! Right? Unfortunately, that is not the case (at least from a market perspective). The Fed’s focus right now is set on slowing the economy (including the job market) in order to bring down inflation and keep it there. The more “positive” job growth reports we see the more hawkish action the Fed is likely to take in order to slow things down. Yes, that means more rate hikes and holding the Federal Funds Rate at an elevated level for a longer period of time.
TL;DR — Job creations came in much stronger than expected. This seems good based on the headline but is actually bad for the market.
• According to the latest Unemployment Report published by the U.S. Department of Labor, initial jobless claims fell by 19,000 to 204,000 in the final week of December — coming in below the pre-report market expectation of 230,000.3 Continuing claims, those who will continue to receive benefits after their initial claim, fell ~24,000 and now sit at 1.69M (still sitting up nearly 375,000 over the last quarter). With this reading being the last of the year and right around the holiday season it is important to note that data could be skewed to the upside as companies are less likely to lay off/terminate positions during that time. We can expect to see further cuts as we begin the new year.
TL;DR — Initial jobless claims came in lower than expected. This was likely driven by inaction during the holiday season / fiscal year-end.
Chart Of The Day:
Below is an excellent graphical representation of the current housing inventory.4 We have “bounced” off of COVID-19 pandemic-era lows and are slowly climbing back toward the long-term average as the number of buyers continues to decline (see mortgage application data above). It’s hard to see any type of massive home value collapse on the immediate horizon when inventories remain far below the average market environment.
TL;DR — Inventories have recovered some, but still remain far below the long-term average.
Source: Mortgage Brokers Association (“MBA”) & Mortgage News Daily — Mortgage Application Volume Finished Year at 26-Year Low.
Source: ADP Research Institute — www.adpemploymentreport.com.
Source: U.S. Department of Labor — Unemployment Insurance Weekly Claims.
Source: J.P. Morgan Asset Management Research — Guide To Markets.