Morning Report: Mortgage applications fall

Posted on January 2, 2025 by Brent Nyitray

Vital Statistics:

Stocks are higher as we begin 2025. Bonds and MBS are up.

Mortgage applications fell 22% over the past two weeks, according to the MBA. Refis fell 36%, but were up 10% on a year-over-year basis. Purchase volume fell 48% and was down 17% compared to a year ago. “Mortgage rates moved higher through the last full week of 2024, reaching almost 7 percent for 30-year fixed-rate loans,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Not surprisingly, this increase in rates – at a time when housing activity typically grinds to a halt – resulted in declines in both refinance and purchase applications.”

For-sale housing inventory rose 0.5% MOM and 12.1% YOY in November, according to Redfin. That said, much of this inventory has been hanging around for a while as sellers refuse to cut prices. Over half the inventory has been on market without a contract for over 60 days. This phenomenon is most concentrated in Florida and Texas, where there has been a lot of building. Rising HOA fees and insurance costs are making people re-thing moving to Florida.

Something to watch for 2025: The Chinese Government Bond yield. As the real estate bust settles in, Chinese government bond yields are collapsing as investors rush to put money in safe assets. China has a massive debt problem, similar to the US in 1929 and Japan in 1989. This will send a deflationary pulse throughout the world and should help to (a) push down yields globally, and (b) push down commodity inflation.

In the 1980s, the Japanese were voracious buyers of US real estate, and for the past 10 years, Chinese investors have been big buyers in the US and Canada. Chinese property investors may be forced to liquidate US holdings in order to cover debts. Since domestic demand in China is collapsing, the country should continue to run trade deficits globally, which means increased demand for sovereign debt, pushing global yields lower.

Just something to think about going forward. Have a happy and prosperous new year.

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