Foreign buyers are bailing on the U.S. housing market. Here's why

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1. U.S. downgrade caused rates to rise, Freddie Mac

Freddie Mac's Primary Mortgage Market Survey reported a 9 basis point week-to-week rise in the 30-year fixed rate loan to 6.9% on Aug. 3 from 6.81% on July 27. For the same week last year, this rate was at 4.99%.

Fitch Ratings on Tuesday downgraded America's long-term foreign currency rating, citing the country's deteriorating fiscal position — and the frequently chaotic process driving governance decisions.

2. Catch up quick

Mortgage application volumes declined 3% for the seven-day period ending July 28, sliding downward for the second straight week. Compared to the same survey period in 2022, volumes were 28.1% lower. (MBA)

The mortgage rate shock regains bite just as the housing market enters into the seasonal soft window. (Fortune)

Two California residents have been federally indicted for stealing identities to fraudulently obtain over $2 million through cash-out mortgages, using counterfeit documents and bank fraud. (U.S. Justice Department)

Freddie Mac reported a rise in second-quarter net income to $2.9 billion, up from $2.5 billion a year earlier. (MarketWatch)

The HUD is investigating whether HSBC’s U.S. unit engaged in redlining majority-Black and -Hispanic neighborhoods in six metropolitan areas between 2018 and 2021, the bank disclosed in a filing Tuesday. (BankingDive)

3. New home sales increasingly backed by FHA loans

The share of new home sales backed by FHA loans climbed from 12.1% to 14.0% in the second quarter of 2023. It is the largest share since Q1 2021.

Conventional loans financed 73.7% of new home sales, down one percentage point over the quarter. The share of VA-backed sales edged up from 5.2% to 5.4%.

Cash purchases made up 6.5% of new home sales in the second quarter of 2023. The share has declined each of the past two quarters and is down 4.2 ppt over that period. LINK

4. BofA joins Fed in reversing recession call

Economists at Bank of America Corp revoked their forecast for a recession in the U.S., becoming the first large Wall Street bank to officially reverse its call amid growing optimism about the economic outlook.

The change comes just a week after Federal Reserve Chair Jerome Powell told reporters that the central bank’s own economists are no longer forecasting a recession.

In the announcement of their new forecast, BofA economists, led by Michael Gapen, pointed to better economic outcomes over the past three months including low unemployment and easing price pressures as key to the change in their call.

5. Foreign buyers are bailing

International buyers are pulling back from the U.S. housing market, as high mortgage rates, soaring home prices, a meager supply of homes for sale, and a strong dollar all make the purchases much less financially attractive.

From April of last year to this March, international buyers bought roughly 84,600 homes; that’s the lowest number since the National Association of Realtors began tracking such purchases in 2009 and a 14% drop from the year before.

And while overseas buyers bought fewer homes, they paid more for them. The median price of homes they purchased was $396,400, the highest ever recorded.

☀️ See you on Monday!

Coming up… The all-important payrolls report drops at 8:30 a.m.

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