For the week of December 10, 2018
It may be a greater supply of homes for sale. It may be price cuts on those homes. Whatever the reason, buyers are coming back to the market, and driving mortgage demand.
Total mortgage application volume increased 5.5 percent last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The week’s results also include an adjustment for the Thanksgiving holiday. Overall volume was still 16 percent lower than a year ago.
Mortgage applications to purchase a home drove the volume, rising 9 percent for the week and 2 percent from a year ago. Purchase volume had been trending lower on an annual basis for several weeks, as home sales weakened. Sales of existing and newly built homes have been falling as rising interest rates and already high prices pushed affordability to the lowest level in a decade.
“The rise in purchase activity was led by conventional purchase applications, which surged almost 12 percent, while government purchases were essentially unchanged over the week,” said Mike Fratantoni, chief economist for the MBA. “This also pushed the average loan size for purchase applications higher, which likely meant there were fewer first-time homebuyers in the market last week.”
Fratantoni also pointed to a small drop in mortgage rates, but weekly rate moves tend to affect refinance demand more than buyer demand because buying a home is a more lengthy and complicated process.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased to 5.12 percent from 5.16 percent, with points decreasing to 0.46 from 0.48 (including the origination fee) for loans with a 20 percent down payment.
Refinance demand responded, rising 1 percent from the previous week. Refinance volume was still 35 percent lower than the same week one year ago, when interest rates were nearly a full percentage point lower. Most borrowers today have already refinanced at rock-bottom rates, and those who are refinancing are largely doing so to pull cash out of their homes.
Home values have risen dramatically over the past few years, giving millions of borrowers much more equity to draw upon. The gains in home values, however, have been shrinking for several months, and that may be giving more buyers incentive to get into the market again. Last year, competition for the few homes that were for sale was fierce, and bidding wars were the norm. That is no longer the case.
Apartments are Shrinking While Rent Prices are Growing –The average size of newly built apartments in 2018 is 941 square feet, which is 5 percent smaller than it was a decade ago. For studio apartments, the change is more pronounced — they’re 10 percent smaller. Rents, on the other hand, have jumped 28 percent during the same time period, according to RENTCafe, a nationwide apartment search website.
“Changes in renters’ living habits are literally redrawing floor plans,” wrote Nadia Balint, senior marketing writer for RENTCafe. “The largest share of apartment dwellers, millennials, prefer living in locations close to restaurants and entertainment, rather than having a large kitchen or living room to cook or entertain at home.”
Higher rental costs today, however, have millennials looking for savings by renting smaller units, and developers are clearly responding. Micro-units are becoming more popular, following on the tiny-house trend, as millennials tend to be more environmentally conscious than previous generations. Apartment developers are supplementing the smaller units by adding more common spaces to their buildings, in which residents can both work and entertain.
“Across our 72,000-unit portfolio we have seen an increasing demand for relatively smaller units,” said Toby Bozzuto, CEO of apartment developer the Bozzuto Group. “We attribute this to a lifestyle shift that is based on our residents’ desire to be less encumbered by things. Our residents value flexibility and convenience and appreciate a thoughtful approach to unit design.”
Despite an apartment construction boom in the last several years, occupancies remain high, and rents are still gaining. Yet rents are rising fastest for those who can afford it least. Rents for low-end properties, defined as those with rents less than 75 percent of the regional median, are gaining faster than luxury rentals, according to CoreLogic.
“We’ve seen a slight uptick in rent prices over the past few months as strong employment growth continues,” said Molly Boesel, principal economist at CoreLogic. “The strength stems from the low-to-middle price tier, which has seen monthly average growth of 3.2 percent since January 2018.”
All real estate is local, and so are size trends, apparently. Overall, including old and new apartments, the Southeast has the largest units in the nation, while California has the smallest. The average apartment size in California is 837 square feet, compared with 975 square feet in the Southeast.