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MORTGAGE DEMAND DROPS AS RATES HIT HIGHEST SINCE FEBRUARY

The cost of financing home loans moved higher again last week, according to the Mortgage Bankers Association (MBA).

And would-be borrowers weren't having it.

The average 30-year fixed contract rate USMG=ECI heated up by 6 basis points to 6.92%, its highest level since February.

As a result, applications for loans to purchase homes USMGPI=ECI fell by 5.2% and refi demand USMGR=ECI, which accounted for 36.6% of total mortgage demand, dropped 5.0%.

In aggregate, total demand for home loans slid 5.1%.

"Investors (are) concerned about rising inflation and the impact of increasing deficits and debt,” writes Mike Fratantoni, chief economist at MBA. “Higher rates ... led to a slowdown across the board."

The 30-year fixed rate, having taken a ride on a roller coaster over the last 12 months, is now 9 basis points cooler than it was the same week a year ago.

Over that same time frame, purchase and refi and purchase demand have risen 12.7% and 33.7%, respectively.

While on one hand, demand for loans to buy homes is among the housing market's leading indicators, all economic indicators are viewed through the rear-view mirror.

For a look at where investors expect the sector to be six months to a year down the road, the stock market's the place to turn.

For much of the post-pandemic era, housing-related stocks - the S&P 1500 Homebuilding index .SPCOMHOME and the Philadelphia SE Housing index .HGX - outperformed the broader market by a wide margin, and fairly consistently.

That relationship reversed in early November.

The SPCOMHOME and HGX indexes are currently down 17.5% and 9.4%, respectively, over the last year, and are currently eating the S&P 500's .SPX dust; the benchmark index has advanced 11.6% during that time.

On the other hand, home improvement retailers Home Depot HD.N and Lowe's LOW.N both reaffirmed annual guidance due to steady demand. So whether building a new home or improving their current digs, builders and DIY-ers are expected to continue buying lumber, drywall and woodscrews.

(Stephen Culp)

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