Refinance Revival ~ April 5, 2019

After last week's largest one-week decline in mortgage interest rates in a decade, the Mortgage Bankers Association reported a 39% increase in its Refinance Index on top of a 12% gain the previous week. This brought the index, based on mortgage applications, to its highest point since January 2016. The Purchase Index increased too, but by a comparatively paltry 3%.

MBA economist Joel Kan noted that the average size of a refinance loan was the highest in MBA history, $438,900, and noted that it was borrowers with larger loans who were driving the refinancing numbers; they are the most sensitive to falling rates. Conversely, the size of purchase mortgages declined which Kan called a hopeful sign that first-time buyers are increasingly active in the market.

Rates held steady this week even though the yield curve "un-inverted." The 10-year T-note yield rose 13 basis points over the last week while the 3-month bill didn't budge from 2.44%, putting 8 basis points between them.

Different Drummers

It just doesn't seem possible to get all three home sales reports marching to the same drummer--or to get any of them to move in one direction for long. Last week we reported a dynamite sales report for existing homes in February, an 11.8% increase from January and the largest monthly gain in more than three years. This week's new home sales were also higher, although not by nearly as much--and pending sales retreated.

The Census Bureau reported new home sales increased by 4.9% from January to a seasonally adjusted 667,000 annual rate. Sales have actually risen for the last four months, but subsequent revisions have largely erased the gains. As a result, the February sales were up only a slight 0.6% from February 2018.

Sales were especially strong in the Northeast and Midwest--topping 25% increases in both regions--but rose only 1.8% in the South and didn't budge in the West where new home sales are down 2.9% from last year.

There were 340,000 newly constructed homes for sale at the end of February, an estimated 6.1-month supply. This is up from 5.4 months a year earlier.

Pending sales lost track of the beat in February. After a solid near 5% increase in January, the National Association of Realtors' Pending Home Sale Index (PHSI) declined 1.0%. This report is always a little fraught because it is a leading indicator, generally predicting sales one to two months down the road. The February number hints that sales at the peak of the spring market may not be as robust as hoped. The PHSI was 4.9% behind the level last February, the 14th straight month of year-over-year declines.