The mortgage market is still passing through one of its biggest downturns in history

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While nationally aggregated home prices and single-family homebuilding have proved fairly resilient, all things considered, through the rate shock, the mortgage market hasn’t been as fortunate.

In fact, the U.S. mortgage market is experiencing one of the biggest downturns in history.

Layoffs and mergers continue to mount in the mortgage industry, and mortgage purchase applications have been hovering around multi-decade lows since 2022.

The decline in mortgage purchase applications isn't just due to priced out buyers; it also stems from the mortgage rate shock coinciding with decreased turnover among existing homeowner, known as the lock-in effect. Some would-be sellers can't afford to sell and buy something else at current rates, while others simply refuse to trade their 2% or 3% mortgage rates for rates of 6% or 7%. Thus fewer mortgages being issued.

Traditional refi is also still slumped.

John Downs, a mortgage advisor in the Washington D.C. area, tweeted a few months ago explaining why this is such a unique mortgage downturn: "Economy good = people buy houses. Economy bad = people refinance houses. We [loan officers] win every time. Just not this time.”

Indeed, during the 2007-2011 housing bust, mortgage purchases [chart above] fell off while refi [chart below] kept going. Right now, both sides are pinned down even as national home prices remain around all-time highs.

The silver lining for the mortgage sector?

This mortgage recession, in terms of transactions, is likely passing through some form of a trough. While we’re not seeing a recovery yet, we also aren’t seeing a bigger decline. Instead, we’re just hovering at low levels.

In order to get a real recovery in the mortgage sector, lower mortgage rates are needed.

That could spur:

1. More refinancing

2. Easing the "lock-in effect" and increasing churn in the resale market

Despite the sizable percentage jump in active inventory for sale in Florida, Zonda chief economist Ali Wolf told me a few months ago that most Florida homebuilders hadn’t seen much of a slowdown.

That was until Zonda received its May 2024 survey back, which found that 38% of Florida homebuilders said sales in May were “slower than expected but not worrisome” and 38% said May sales were “slower than expected and causing concern.”

Today, Zonda provided ResiClub with their June survey results, which found an even bigger drop-off in Florida builder confidence 👇

0% of Florida homebuilders: June was stronger than expected 

0% of FL builders: June was on track with expectations

31% of FL builders: June was slower than expected but not worrisome

69% of FL builders: June was slower than expected and causing concern

Is this just a softening following Florida's historic run-up in home prices during the Pandemic Housing Boom? Or is a Florida correction forming that will expand beyond areas like Punta Gorda (which is already in correction mode) and the state’s coastal condo market (which is also already in correction mode)? ResiClub will keep an eye on it.

ResiClub will soon launch quarterly surveys of real estate agents, homebuyers, and sellers. Companies interested in co-branding a survey category with us, should email: [email protected]

Not only does our survey work provide critical intel to industry stakeholders, but it’s also often picked up by national media outlets.