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Housing Beat: Mortgage Rates Dip, Home Sales Flatten, Reverse Mortgages Get New Cred

The latest news from the housing industry finds mortgage rates dipping slightly while home sales decelerate and reverse mortgages gain greater attention.

On The Mortgage Front: Freddie Mac (OTC:FMCC) reported the 30-year fixed-rate mortgage averaged 5.25% as of May 19, down from last week when it averaged 5.3%.

The 15-year fixed-rate mortgage averaged 4.43%, down from last week when it averaged 4.48%. And the five-year, Treasury-indexed hybrid adjustable-rate mortgage averaged 4.08%, up from last week when it averaged 3.98%.

"Economic uncertainty is causing mortgage rate volatility," said Sam Khater, Freddie Mac's chief economist. "As a result, purchase demand is waning, and homebuilder sentiment has dropped to the lowest level in nearly two years. Builders are also dealing with rising costs, meaning this posture is likely to continue."

The Mortgage Bankers Association (MBA) reported that its Market Composite Index, a measure of mortgage loan application volume, decreased 11% from one week earlier. The Purchase Index was down by 12% and the Refinance Index was down by 10% -- the latter was also 76% lower year-over-year.

"Mortgage applications decreased for the first time in three weeks, as mortgage rates -- despite declining last week -- remained over two percentage points higher than a year ago and close to the highest levels since 2009," said Joel Kan, MBA's associate vice president of economic and industry forecasting. "For borrowers looking to refinance, the current level of rates continues to be a significant disincentive."

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On The Home Sales Front: Three new data reports determined that home sales have been flattening.

The latest monthly housing market report from RE/MAX LLC, a subsidiary of RE/MAX Holdings NYSE:RMAX, analyzed trends in the nation's 53 leading metro areas. RE/MAX found April's home sales increased less than 1% from March and fell 12.8% year-over-year. But while sales were enervated, the median sales price continued to rise: April's $420,000 was up 3.4% from March and up 15.1% from April 2021. And this occurred while active inventory shot up 24% from the previous month, although it was 10.4% below the level from one year ago.

"In the big picture, it's still a strong housing market, with sales happening quickly and demand easily outpacing supply," said Nick Bailey, president and CEO at RE/MAX.

"We're starting to see a cooling in sales, which isn't surprising given the record results of 2021 and the recent rise in interest rates. That should create more balance over time, countering the frenzied seller's market we've had for so long. Driven by generational demand, rising rental costs and still relatively low interest rates, 2022 could still rank as one of the best years in the past decade."

A weak April for home sales was also confirmed by the National Association of Realtors (NAR), which reported total existing home sales were down slid 2.4% from March to a seasonally adjusted annual rate of 5.61 million, while year-over-year sales dropped 5.9% from 5.96 million in April 2021. This is the third consecutive month of declining sales.

"Higher home prices and sharply higher mortgage rates have reduced buyer activity," said Lawrence Yun, NAR's chief economist. "It looks like more declines are imminent in the upcoming months, and we'll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years."

The brokerage Redfin NASDAQ:RDFN reported 60.7% of home offers written by its agents encountered competition on a seasonally adjusted basis in April, the lowest level since March 2021. This is lower than the 63.4% share reported in March and below the 67.4% level from one year earlier; it also marks the second-consecutive monthly decline in homebuyer competition.

"The meteoric rise in mortgage rates is prompting more house hunters to back out of the market, causing competition to cool," said Redfin Chief Economist Daryl Fairweather.

"Higher rates are also limiting homebuyers' ability to significantly bid up home prices, meaning some homes aren't selling for as much over the asking price as they would have a year ago. This could help set off a slowdown in home-price growth in the coming months."

Complicating matters was the low level of new properties being made available. Single‐family housing starts in April were at a rate of 1.1 million, down 7.3% from the revised March figure of 1.18 million, according to data from the U.S. Census Bureau and Department of Housing and Urban Development. Single‐family housing completions in April were at a rate of 1 million, which is 4.9% below the revised March rate of 1.05 million.

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On The Reverse Mortgage Front: Reverse mortgages have been a niche product for decades, but a new report from BlackFin Group, a Denver-based management consulting firm, recommended that more lenders add this product to their offerings.

The report "Serving Clients for Life with HECMs" focuses on the Home Equity Conversion Mortgage, a federally insured reverse mortgage product. The report details the HECM history and how the product can be marketed to its target market of homeowners ages 62 and older. It also addresses long-standing misconceptions that continue to incorrectly define the product.

"The demographic for reverse mortgages is $10 trillion strong and America has a serious problem with retirement, health care and the burden being placed on Generation X caring emotionally and many times financially for both boomers and millennials," said Wendy Peel, a partner and managing director for BlackFin Group's Align Reverse Lending Practice, who co-authored the report with Rachel L. Smith.

"A reverse mortgage is a mechanism by which borrowers gain access to that same equity they've been pouring into their home via their mortgage payments for years -- often decades -- so that they may age in place."

According to the most recent data from the National Reverse Mortgage Lenders Association (NRMLA), homeowners 62 and older saw their housing wealth grow by 3.98% or $405 billion in the fourth quarter of 2021 to a record $10.6 trillion from the third quarter of 2021. The increase in older homeowners' wealth was primarily attributed to a $452 billion increase in home values (up 3.7% year-over-year), which was offset by a 2.3% or $47 billion increase in senior-held mortgage debt.

"To help ameliorate the risks and concerns surrounding the ability of homeowners to age their way, it is critical that housing wealth is carefully and responsibly considered when developing a comprehensive retirement plan," said NRMLA President Steve Irwin. "For many, housing wealth is indeed their greatest asset, and tapping that equity under the right circumstances will enable a secure path to aging security."

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