Las Vegas Sun

March 29, 2024

Record-high mortgage applications plummet to lowest in 22 years in Nevada

Mortgages

J. David Ake / Associated Press file (2018)

The Freddie Mac headquarters building in McLean, Va., is shown in this 2018 photo. The average rate for a 30-year fixed mortgage — the most popular type of loan — was 5.22% for the week beginning Aug. 11, according to Freddie Mac, also known as the Federal Home Loan Mortgage Corporation. A year ago, Freddie Mac’s 30-year rate sat at under 3%. The higher rates are cooling the housing and refinancing markets in Nevada and across the nation.

The number of conventional mortgage applications in July in Nevada was down more than 34% from the same month in 2021, according to a report from the Mortgage Bankers Association.

And the number of refinanced mortgage applications last month was down more than double — about 84% — from July 2021.

The reason: Increases in interest rates and the high cost of homes, experts say.

“We went from all-time record-high applications to a 22-year low, which is a brutal swing,” said Jonathan Gedde, CEO of SimpliFi Mortgage and chairman of the Nevada Mortgage Lenders Association.

Nationally, the trend is similar — just not as pronounced — as mortgage applications in July were down 18% from the same month in 2021, according to the bankers association report.

From June 2020 until the end of 2021, Gedde said, the industry “couldn’t hire people fast enough,” largely because of near-zero mortgage rates at the time.

Because of inflation and various economic headwinds coming out of the economic upheaval of 2020, the Federal Reserve raised its benchmark interest rate multiple times this year. The average rate for a 30-year fixed mortgage — the most popular type of loan — was 5.22% for the week beginning Aug. 11, according to Freddie Mac, also known as the Federal Home Loan Mortgage Corporation.

Rates started to creep up in January as the Fed has made attempts to curb consumer inflation, which is near a 40-year high in the United States.

A year ago, Freddie Mac’s 30-year rate sat at under 3%, and before this year, the last time the 30-year rate touched 5% was more than a decade ago.

“All of these (mortgage-lending) companies had been doing all this hiring to take advantage of all the business that was out there,” Gedde said. “We’re talking significantly higher-than-normal capacity, then, all of a sudden, we have significantly lower application numbers. It’s caused a radical shift.”

Last week, mortgage lender LoanDepot, a national firm that does business in Las Vegas, announced a second-quarter loss of $224 million. The dwindling business is forcing some difficult decisions.

“LoanDepot is the fifth-largest wholesaler in the entire country, and they just closed that whole department,” Gedde said. “We’re seeing lots of layoffs. The last time we had a radical market shift was 2008, which is really the only time we can compare this to. Even 2008 and 2009 (the Great Recession), that wasn’t as drastic of a shift.”

Because of so much uncertainty in the U.S. economy, nobody knows how the Fed — and the broader housing market — will respond in the coming months.

For a second consecutive month, the median price for an existing home in the Las Vegas Valley declined in July, according to the Las Vegas Realtors trade group.

“We’re seeing a shift in the housing market,” Brandon Roberts, president of Las Vegas Realtors, said in a statement. “We haven’t seen prices slow down like this in several years, and we haven’t had this many homes available for sale since 2019.”

The decline, however, is modest. The median price last month for a home in Las Vegas was $465,000, a 3% decrease from June. Still, the price of a Las Vegas home has more than quadrupled in the past decade, including establishing a record in May with a median sale price of $482,000 for a single-family home.

What’s happening in the mortgage industry is more of a shakeup than a sign of a long-term issue, Gedde said.

“The real estate market, I think, will stabilize after it goes through this little correction that it’s going through now,” Gedde said. “I think prices got inflated a little bit with the lack of inventory and record-low mortgage rates. That combination pushed prices up, but now prices are starting to come back down a little.”

Corey Gehlken, a senior loan officer for Keller Mortgage in Las Vegas, said the refinance business has almost completely gone away.

“It’s a rough time out there in the mortgage industry,” Gehlken said. “When times are tough like this, people have to be skilled to have success in this industry. I think people who have good systems in place, great communication and great customer service, those people will be the ones who will be OK.”

While mortgage rates have jumped lately, they’re still a far cry from where they were the last time U.S. consumers experienced inflation at the levels of what they’re facing today. According to Freddie Mac, the rate for a 30-year fixed mortgage in October 1980 was about 18%.

“People got used to seeing those rates near 2%, but where we are now, we’re pretty much just back to where we were before the pandemic,” Gehlken said. “Those rates around 2%, those just weren’t realistic. They were real at the time, but that wasn’t a normal type of situation.”

Gedde said he thought mortgage rates would likely “stabilize” somewhere close to the current rates.

“I think we’ll settle into a new normal,” Gedde said. “We’ll see how things go with the direction of the economy. Inflation is where the unknowns lie. A recession might actually be good for the mortgage industry because rates might go back down a little. It’s one of those industries where hard economic times can sometimes be a boon.”