Mortgage Demand Crashes, America’s 3rd Biggest Homebuilder Posts 41 Percent Drop in New Home Orders

A 'For Sale' sign is posted in front of a single-family home in Hollywood, Fla., on October 27, 2022. Joe Raedle/Getty Images

Mortgage demand crashed last week, despite a decline in interest rate hikes and a stronger start to the year in January.

Total mortgage application volume tumbled 9 percent for the week ending Jan. 27, compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index on Feb. 1.

“Mortgage rates declined for the fourth straight week and have now fallen almost 40 basis points over the past month. Treasury yields were higher on average last week, while mortgage rates decreased, which was a sign of a narrowing spread between the two,” said MBA’s Vice President and Deputy Chief Economist Joel Kan.

The average 30-year fixed-rate mortgage with conforming loan balances—$726,200 or less—fell to 6.19 percent from 6.20 percent, in comparison to the 3.78 percent rate during the same period in 2022.

Points also fell to 0.65 from 0.69—including the origination fee—for loans with a 20 percent down payment.

“The spread between mortgage rates and the 10-year Treasury has been abnormally wide since early 2022,” Kan added.

“Further narrowing of that spread is expected to put downward pressure on mortgage rates in the coming months. Overall application activity declined last week despite lower rates, which is an indication of the still volatile time of the year for housing activity,” he continued.

Real Estate Analysts Await Effects of Fed Rate Hike

Mortgage rates moved over a narrow range the past week. But the Federal Reserve’s long awaited Feb. 1 policy decision over the borrowing rate may change that.

The central bank hiked interest rates by 25 basis points as expected but it does not necessarily ensure a jump in mortgage rates.

The monthly employment report expected at the end of the week may move rates upward, depending on what is reported regarding the state of the job market in addition to future signs of continued inflation.

Although mortgages rates have fallen from their recent highs, home loan applications to refinance mortgages fell 7 percent for the week and is 80 percent lower from the same week a year ago.

Home Sales Still Weak

“PulteGroup, the 3rd largest builder in America, just reported a massive -41% decline in sales in Q4 2022,” said Nick Gerli, CEO and founder of Reventure Consulting, in a tweet.

New home orders fell for PulteGroup, one of the largest homebuilders in America, despite strong fourth quarter results of $5.1 billion in revenue, mostly in existing sales.

The homebuilder saw new orders drop 41 percent year over year to 3,964 units for the fourth quarter because of rising mortgage rates, lower affordability, lower consumer confidence, and slower demand.

That led to a cancellation rate of 32 percent, up from 11 percent in the same period in 2021 and 24 percent in the third quarter of 2022.

Home orders were down across all regions that it served nationwide, while the value of new orders declined 43.1 percent from a year ago to $2.15 billion.

Homeowners saw a brief jump in their borrowing prospects after the slow holiday season. But this saw demand rise throughout most of January and there are still very few borrowers who can benefit from a refinance at this time due to high rates, and as demand begins to fall again into February.

Mortgage applications to buy a home fell 10 percent for the week and were 41 percent lower year over year.

Although home prices and mortgage rates have seemingly peaked for now, the supply of homes for sale remains historically low, which may be keeping affordability and mortgage demand under pressure.

“Purchase activity is expected to pick up as the spring homebuying season gets underway, bolstered by lower rates and moderating home-price growth. Both trends will help some buyers regain purchasing power,” said Kan, who expects the market to slightly recover in the second quarter.