Why mortgage applications have jumped despite rising interest rates

Matt, how do you explain why mortgage applications went up in the face of rising rates? You would expect probably the opposite. Yeah. I think when it comes to mortgage applications, probably better to take a longer view and not get too bogged down. In nitty gritty week to week movements, it’s easier to sort of line up those correlations in the bigger picture. So a A1 week change can end up being noise in the bigger picture. What does the longer, what what does the longer view tell you? It never tells us anything about the future, but it does tell us that rates have absolutely crushed transactions on the refi side of the market and they haven’t been too kind to the purchase side either. I remember, you know, this time last year we were thinking, OK, NBA numbers are about in line with their long term lows, shouldn’t get much worse. And then it ended up getting much worse because rates went even higher. So yeah, I mean there’s almost nowhere to go but up at current levels. What where? What is the point at which interest rates literally crush the mortgage application market? We’re at 7 1/2% now. Some people would say 7% was that threshold, but obviously it’s, it seems not to be what is the, is it 8% where I think a lot of people would argue that we’ve seen it already last year when we hit 8% and to a large extent we’re in the middle of it right now. The people that are driving demand on the purchase side are people that really need to buy a home who aren’t really letting interest rates enter into their decision making. So you know, I don’t, I don’t want to to jinx it and say we’re at rock bottom because things can always get worse in some way, but not a whole lot worse than they are right now. In terms of what rates, take your point and I and I agree with you. I mean we are at the absolute, I guess a typical peak of housing transactions that we’re in the spring. I mean it’s March, April and May that’s when people are buying and selling houses. And so it stands to reason that, well if you need to move or you want to move this spring, now’s the time you’re going to do that. Now’s the time you’re going to apply for a mortgage and you’re just going to say, OK, that’s what I’ve got to pay. I figure that into the into the total cost of the house I’m buying, the operating cost of the house I’m buying. And I proceed in the hope that in two years time or four years time, I may be able to refinance however long it takes. Yeah, yeah. And that’s, that’s a paradigm that has been with us, you know, for for most of us, for our adult lives. But it’s one that people need to consider might be a little bit different moving forward. And to your point, you know, maybe it’s not just two years, maybe it is four years, but at some point you should have the opportunity to refine to lower rates. Why, Why have house prices stayed up as well as they have in the, I mean, we we’re talking about transactions and mortgage applications. They seem right now a bit to be a little higher than they were, but you call that noise. Why do you think house prices, which typically would be dented by rising interest rates, haven’t been so much? Yeah, multifaceted problem probably. And I’m not a housing economist, but the thing that I understand that is most commonly said is an inventory issue when it comes to to prices. And we also don’t have a a mortgage meltdown this time around. You know, this isn’t 2007 eight where there’s a crisis of confidence in the mortgage market and housing market. Housing is still seeing a solid, underwriting standards are solid and you know people aren’t as worried about a big drop in values. Your best guess we’re at what 7 1/2% now on on the typical 30 year mortgage. What do you think the range is for interest rates this year? Yeah, great question. You know that 8% upper bound which lined up with 5% ten year treasury yields roughly seem to be a buying opportunity as far as investors were concerned. So I think that’s a pretty solid upper bound. You know it could drift a little bit higher than that. Then you get into structural problems with the mortgage-backed securities market. So let’s say 8% on the top and really without instilling too much hope among the the mortgage audience out there, I still think that rates could go down to 5% even below. Because once the thing turns around, once we see those those monthly inflation numbers do what the Fed has been waiting for them to do, the market’s going to know that. And when the big shift happens, when shelter inflation allows CPI to come down to, you know, annualized 2% levels, the game will be on and rates will move down very quickly. And it wouldn’t be a surprise if the lower end of that range is 5%, maybe even slightly lower.