by Calculated Risk on 10/13/2010 07:56:00 AM

The MBA reports: Mortgage Refinance Applications Jump as Rates Continue to Fall in Latest MBA Weekly Survey

The Refinance Index increased 21.0 percent from the previous week. The seasonally adjusted Purchase Index decreased 8.5 percent from one week earlier.
...
“Refinance application volumes are now close to the highest level this year. Purchase activity remains generally weak" ... said [Michael Fratantoni, MBA’s Vice President of Research and Economics].

“Last week saw a big jump in applications for FHA loans to purchase homes. We surmised that this was due to potential buyers wanting to beat the stricter FHA standards that went into effect October 4th. This conjecture was confirmed by the fact that this week FHA applications fell back to a level closer to the average seen over the past four months, ”continued Fratantoni.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.21 percent from 4.25 percent, with points increasing to 1.02 from 1.00 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The 30-year contract rate is the lowest recorded in the survey, while the previous low was observed last week.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

The decrease in purchase activity this week appears to be related to the slight change in FHA standards.

Note that the 30 year contract rate is at another record low of 4.21%.

by Calculated Risk on 10/13/2010 12:00:00 AM

On Friday, Fed Chairman Ben Bernanke will speak at the Federal Reserve Bank of Boston Conference "Monetary Policy Objectives and Tools in a Low-Inflation Environment".

Jon Hilsenrath at the WSJ has a preview: Fed Chief Gets Set to Apply Lessons of Japan's History

Mr. Bernanke is preparing for a potentially important policy speech Friday, when he could detail his thinking on the Fed's next steps ... The conference is a reprise of a 1999 conference at which Mr. Bernanke and other academics took Japanese officials to task for failing to get their economy moving.

Here is the 1999 paper that Hilsenrath mentions: From Ben Bernanke (1999): Japanese Monetary Policy: A Case of Self-Induced Paralysis?* (via Professor Krugman: Self-induced Paralysis)

There is quite a bit about deflation and monetary policy in his 1999 paper, including arguing for a higher inflation target of 3% to 4%. Bernanke even made some "helicopter drop" comments before his well known speech in 2002: Deflation: Making Sure "It" Doesn't Happen Here

On Friday, Bernanke might discuss possible future steps the Fed could take in addition to buying longer-term Treasury securities.

by Calculated Risk on 10/12/2010 08:32:00 PM

From Eric Wolff at the North County Times: Agents flee real estate slump

The ranks of holders of the "sales person" license thinned by 18 percent since the peak, down to 327,341 active licenses in August.

The number of brokers, who have a larger investment in time and money into the business, also slumped, but by 3 percent to 148,373.

The drop in licensees whacked membership rolls at the California Association of Realtors by 20 percent, pushing their membership to 160,000.
...
"When you go from one to three sales a month to one sale every three or six months, you can't make a living," said Susana Marquez, a San Diego real estate agent.

Not only are sales down, but so is the percentage commission, also from Eric Wolff: Real estate agents reducing commissions

by Calculated Risk on 10/12/2010 03:55:00 PM

CR Note: This is from housing economist Tom Lawler:

While as always results vary by area, on balance most local realtors/MLS are reporting significant YOY home sales declines for September sales. However, it’s important to remember that last September home sales were “goosed” a bit by the federal home buyer tax credit, which was set to expire at the end of November. Existing home sales ran at an estimated seasonally adjusted annual rate of 5.6 million last September, compared to 5.1 million in August 2009.

While I only have data on a relatively small part of the country, right now I estimate that existing home sales ran at a seasonally adjusted annual rate of about 4.50 million, up almost 9% from the August [2010] pace [of 4.13 million SAAR].

CR Note: This would put the months of supply around 10.3 months in September based on an estimate of 3.85 million for inventory.

Note: It is too soon for any impact on sales from "Foreclosure-Gate".

Existing home sales for September will be released on Monday October 25th at 10 AM ET.

by Calculated Risk on 10/12/2010 02:00:00 PM

From the Fed: Minutes of the Federal Open Market Committee

Staff Economic Outlook
In the economic forecast prepared for the September FOMC meeting, the staff lowered its projection for the increase in real economic activity over the second half of 2010. The staff also reduced slightly its forecast of growth next year but continued to anticipate a moderate strengthening of the expansion in 2011 as well as a further pickup in economic growth in 2012. The softer tone of incoming economic data suggested that the underlying level of demand was weaker than projected at the time of the August meeting. Moreover, the outlook for foreign economic activity also appeared a bit weaker. In the medium term, the recovery in economic activity was expected to receive support from accommodative monetary policy, further improvements in financial conditions, and greater household and business confidence. Over the forecast period, the increase in real GDP was projected to be sufficient to slowly reduce economic slack, although resource slack was anticipated to still remain elevated at the end of 2012.

Monetary policy:

Participants discussed the medium-term outlook for monetary policy and issues related to monetary policy implementation. Many participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate or if inflation continued to come in below levels consistent with the FOMC's dual mandate, it would be appropriate to provide additional monetary policy accommodation. However, others thought that additional accommodation would be warranted only if the outlook worsened and the odds of deflation increased materially. Meeting participants discussed several possible approaches to providing additional accommodation but focused primarily on further purchases of longer-term Treasury securities and on possible steps to affect inflation expectations. Participants reviewed the likely benefits and costs associated with a program of purchasing additional longer-term assets--with some noting that the economic benefits could be small in current circumstances--as well as the best means to calibrate and implement such purchases. A number of participants commented on the important role of inflation expectations for monetary policy: With short-term nominal interest rates constrained by the zero bound, a decline in short-term inflation expectations increases short-term real interest rates (that is, the difference between nominal interest rates and expected inflation), thereby damping aggregate demand. Conversely, in such circumstances, an increase in inflation expectations lowers short-term real interest rates, stimulating the economy. Participants noted a number of possible strategies for affecting short-term inflation expectations, including providing more detailed information about the rates of inflation the Committee considered consistent with its dual mandate, targeting a path for the price level rather than the rate of inflation, and targeting a path for the level of nominal GDP. As a general matter, participants felt that any needed policy accommodation would be most effective if enacted within a framework that was clearly communicated to the public. The minutes of FOMC meetings were seen as an important channel for communicating participants' views about monetary policy.

That last sentence indicates that the FOMC views the minutes as an important communication tool - and the earlier sentences strongly suggest QE2 will arrive on Nov 3rd and will consist of purchases of longer-term Treasury securities.

This isn't anything new - but it is quite clear. And this was before the recent weak employment report.