Weitz - More evidence that the increase in interest rates is taking a negative toll on the RE market.
Bank executives have been hoping they could dull the pain of a plummeting mortgage-refinance market by shifting focus to loans for home purchases. So far, that isn't working out.
The Mortgage Bankers Association said Wednesday that mortgage applications dropped 13.5% in the week ended Sept. 6 from the previous week. The data, which include an adjustment for the Labor Day holiday, reflect a 20% drop in refinancing and a 3% decline in purchase loans.
"Demand is significantly down," said Glenn Kelman, chief executive of real-estate brokerage Redfin, which works in 22 U.S. markets. "Anybody who was going to buy a house this year tried to get it done in June or July because they saw the writing on the wall and worried about the rate increase."
Interest rates on 30-year fixed-rate mortgages rose to 4.80% from the prior week's 4.73% in the latest data from the mortgage bankers group. That is up from 3.60% at the end of April.
Weitz - As I've mentioned, that is a tremendous increase in a short period of time. Unless this trend changes, we'll see continued problems in the Seattle Real Estate market.
Refinancing has been a big casualty of the rate jump, starting with a sharp drop three months ago. Refinancings stand at the lowest level since June 2009 and are down 71% from a recent peak in May, the trade group said.
But recent data from the mortgage group show that demand for home-purchase loans also has softened, beginning in April. Purchase applications are still running 7% above their levels of a year ago but are less than expectations.
That bodes ill for lenders that have begun emphasizing loans for home purchases in hopes that it would help offset the refinancing slowdown.
To be sure, rising mortgage rates don't usually affect home purchases made in cash. Roughly one-third of all home purchases were made in cash in July, according to the National Association of Realtors.
Refinancing activity, meanwhile, is much more sensitive to rising rates than is purchase activity.
The MBA on Aug. 22 forecast that overall lending would shrink nearly 32% next year to $1.09 trillion, with a 60% decrease in refinancing but a 14% rise in home-purchase lending.
Still, the most expensive markets tend to get hit hardest when rates rise quickly.
Rising interest rates also mean house hunters might be forced to lower their sights in terms of what they can afford, resulting in smaller loans.
Weitz - Exactly, this is the problem.
Citigroup Inc., C -0.93% which scaled back its home-loan business after the financial crisis, is closing an office in Danville, Ill., that is dedicated to refinancings, a bank spokesman said Wednesday.
The New York lender had opened the office in the small eastern Illinois city "to handle the surge in demand for refinancing; however, due to the ongoing decline in refinance volumes, the excess capacity Danville provided is no longer needed," the firm said Wednesday. The bank notified its employees July 15.
The bank reported $17.2 billion in mortgage originations in the second quarter, down 4% from the previous quarter.
Citigroup is just one big bank o cut jobs in the mortgage business.
Wells Fargo & Co. has cut 3,000 jobs since July. Bank of America Corp. in late August told about 2,100 employees they were being let go due to a decline in refinancing activity. J.P. Morgan Chase JPM -1.92% & Co. is accelerating plans to cut as many as 15,000 jobs in its mortgage division by the end of 2014. The bank now expects to be roughly two-thirds of the way through with those reductions by the end of this year, a spokeswoman said.
All told, the Mortgage Bankers Association expects refinance volume to fall from $1.2 trillion in 2012 to less than $400 billion in 2014, which would be the lowest level for refinancing since 2000.
"What we're going through today is not a temporary, short-term anomaly," said David Stevens, the trade group's chief executive, at a banking conference in Raleigh, N.C., Tuesday. "This is a substantive change in the cycle of our industry."
A slew of lenders this week have warned investors to expect a significant drop in mortgage profits for the rest of the year.
"We're still making money out of it, but it's being really stressed," Kelly King, chief executive of regional bank BB&T Corp., BBT +0.03% said on Tuesday at a banking conference held by Barclays PLC.
BB&T, which is based in Winston-Salem, N.C., expects mortgage production to fall as much as 14% and revenue to drop as much as 28%.
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