Housing market slips back into a Q4 deep freeze

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This morning, we learned that mortgage purchase applications have reached their lowest level since 1995. Then, this afternoon, the average 30-year fixed mortgage rate surged to 8.00%—the highest rate since mid-2000.

What's happening? The recent spike in mortgage rates, combined with the housing market entering its seasonally softer window, has caused national housing transaction volumes to enter something of a "deep freeze." At least, that's expected to be the case for the final few months of 2023.

Indeed, housing market affordability is so pressurized right now that there are fewer resale transactions occurring today than during the depths of the 2008 housing crash.

But, don't confuse resale transaction volumes with house prices. Nationally speaking, home prices continue to remain relatively stable—though some price softening is likely occurring in this quarter.

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One thing to consider is that existing home sales are currently constrained due to both suppressed demand and supply. There's simply not much "churn" (i.e. someone selling their home to purchase something new) taking place. This is understandable; essentially, many homeowners are hesitant to sell their properties and buy something new because of the financial shock of losing their historically low interest rates for something with a 7% or 8% rate handle.

Here are 5 things I’m watching over the coming months:

1. Do active listings continue to climb beyond October, thus suggesting greater than expected market softening?

2. Homebuilder confidence is falling again. Does that translate into builders slashing down their margins in order to provide even sweeter incentives?

3. How much price softening occurs (outside of clear correction-mode markets like Austin and New Orleans) this winter?

4. Where are mortgage rates come December? That's when the national market begins to transition into the seasonally stronger window.

5. On a regional basis, where is the “key” regional housing market metric come December? (I’ll be tracking that for subscribers who upgrade to ResiClub Pro).

Thank you for subscribing to ResiClub! Nothing in this email is intended to serve as financial advice. Do your own research.