The Housing Market Is In The Middle Of One Of The Most Brutal Mortgage Recessions In History

Source: Fast Company, Lance Lambert
Photo: Eva Bronzini/Pexels; The Lazy Artist Gallery/Pexels

The good news? This mortgage recession may have finally hit the bottom, at least in terms of volume.

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The bad news for the mortgage industry: The mortgage market is still passing through one of its biggest slumps in recent memory. The good news? There are signs this mortgage recession may have finally hit the bottom in terms of volume.

The story is pretty simple. After spiking in 2022, mortgage rates still haven’t come down in a meaningful way.

That has constrained turnover in the market for existing homes, as the “switching costs” of going from a 3% mortgage rate to a 6% or 7% rate don’t make a lot of financial sense for would-be sellers. Additionally, traditional refinancing has essentially dried up.

According to the latest reading this week from the Mortgage Bankers Association, both mortgage purchase applications (see above) and refinance applications (see below) have bounced up—just barely—from the lows they reached in 2023.

Mortgage applications are still hovering around multi-decade lows.

Suppressed mortgage activity means that there are still waves of layoffs and mergers occurring across the mortgage industry. (Here’s a mortgage layoff/merger tracker.)

When we talk about the “mortgage market,” we aren’t referring to the entire housing sector. For instance, on a national level, single-family home prices rose in 2023.

And, all things considered, the homebuilding sector has been fairly resilient despite the mortgage-rate shock. Builders reduced their margins to offer incentives like mortgage buydowns, while the inventory of existing homes (builders’ competition) remained tight. And so builders were able to keep selling.

Big picture: The primary way the mortgage industry could rebound in the short term is if mortgage rates were to see a steep decline. An improved level of housing affordability would not only spur more activity in the existing home market but also unleash some pent-up demand in the refinance segment.

https://www.fastcompany.com/91031690/housing-market-mortgage-rates-refinance-recession