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The U.S. housing market is crumbling--a worrying indication that an economic catastrophe could be brewing. Yet, nobody seems sure why this is happening in an economy that remains hale and hearty by most measures.
But don’t rush to your banker just yet hoping to get an easy deal. Rejections for mortgages and refinancing applications have, unfathomably, shot up to record levels.
US - Home - Sales - Percent - US
U.S. existing home sales (which make up about 90 percent of U.S. home sales) fell off a cliff in 2018, with mortgage lenders recording a sharp fall in applications, originations and profits.
Existing home sales cratered a massive 10.3 percent year-over-year and 6.4 percent month-over-month in December to just 4.99 million units. That was several multiples worse than the 1 percent month-on-month decline that a Reuters survey of economists had projected. It also marked the lowest level of sales in three years and the steepest decline in seven years. Home sales declined on a year-over-year basis in every month apart from February, a trend that grew more aggressive towards the tail-end of the year given the 5.1 percent and 7.8 percent declines in October and November, respectively.
Banks - Segments - Heat - Malaise
Meanwhile, banks with large mortgage-lending segments are particularly feeling the heat from the home-buying malaise.
During the last quarter, Wells Fargo, the largest bank mortgage originator, saw its mortgage income plunge 50 percent to $467 million, while originations fell 28 percent to $38 billion. JPMorgan did not fare any better after recording a 46 percent dive in mortgage income to $203 million and a 30 percent decline in originations to $17.2 billion.
What’s going on?
The ongoing trend of falling homes sales is a conundrum that has been puzzling experts considering that it’s been happening against a backdrop of one of the longest economic expansions in history.
US - Economy - Year - GDP
The U.S. economy was exceptionally strong in the previous year with better-than-expected GDP...
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