Is the Housing Market Finally Turning?

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An overhead view of three houses in a neighborhood. The grass is very green and the trees have red and yellow leaves
As the housing market slows, will we see a down turn in the mortgage industry, or will it simply return to normalcy?

As more stories appear in the press about the historically hot housing market finally starting to cool, some are starting to worry that the mortgage industry will experience a major downturn by 2022. It’s more likely that the slowdown we’re seeing is just a return to normalcy. 

There are a number of reasons I believe this, but first let’s look at some of the signs we’re seeing that indicate the market is cooling. 

As statistics for June came into focus, the Mortgage Bankers Association reported that new home loan volume had fallen to a 13-month low. Applications for new loans were down in May, as well, the organization reported, with May falling 3% from April and 23.8% from May 2020. 

The MBA’s commentary at the time put the blame on fewer homes to purchase, pushing loan applications down. This is the inventory problem that I have touched on in previous posts.  

Fortunately, a recent report from Zillow pointed out that there has been an uptick in the number of homes being listed for sale. If it was just an inventory problem, we would expect the market to balance out. It hasn’t yet and that’s what makes me think this may be a seasonal pattern. 

It’s been so long since we’ve seen a normal business cycle in the mortgage industry that I’m not surprised that many may have missed it. We have many people working in the business today who have never seen a traditional mortgage business cycle. 

Traditionally, the market would heat up in the spring and get very hot when families with children got them back for summer vacation (or moving season) and then the market would begin to cool in mid-summer and continue to do so for the remainder of the year. Is that what we’re seeing today? 

Radian recently reported that home prices are still high and seem to be quite stable. The company’s data showed home prices were very strong in the first half of 2021 with the median home price in the U.S. up to $282,967 in June. In its analysis, it spoke to seasonality. 

“Historically, the spring months help build inventory for the summer season. In the ten years from 2010 to 2019, the lightest month of national listing volume (December) averaged 1.3 million listed properties while the mid-point of the year (June) averaged 1.6 million listed properties. While listing activity has increased in each of the most recent four months, the June 2021 listing inventory was just over 968,000 units, more than 500,000 fewer units than the June historical average.” 

If the market was in trouble, I’d expect to see more softening of home prices. That may be coming, but we’re not seeing any signs of it yet. 

And while new homes under construction are still skewed toward the high end of the market, making it harder for first-time buyers to find a newly built home they can afford, housing starts are still increasing

We will continue to watch to see exactly how the market will evolve, but at this point it’s beginning to look like a return to something akin to a normal mortgage market. 

By Joe Camerieri, EVP, Client Account Management at Mortgage Cadence

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