by Calculated Risk on 10/13/2010 10:05:00 AM

Report the MBA reported on the increase in refinance activity:

The Refinance Index increased 21.0 percent from the previous week.
...
“Refinance application volumes are now close to the highest level this year." [said Michael Fratantoni, MBA’s Vice President of Research and Economics].

Click on graph for larger image in new window.

This graph shows the MBA's refinance index (monthly average) and the the 30 year fixed rate mortgage interest rate and one year ARM rate, from the Freddie Mac Primary Mortgage Market Survey®.

As mortgage rates have fallen, there has been an increase in refinance activity. The peak this year was in late August, although the most recent week was close.

However the level of activity is still well below the previous refinance booms in 2009 or in 2002/2003. It takes lower and lower rates to get people to refi - and many borrowers have insufficient equity (or negative equity) or inadequate income to refi.

With 30 year mortgage rates more than 0.5% below the lows of 2009, we might see another surge in refinance activity (the average contract interest rate for 30-year fixed-rate mortgages last week was at 4.21% according to the MBA). According to the NY Fed's Brian Sack, lowering longer-term borrowing costs for many households is one of the key transmission mechanisms that the Fed is targeting with QE2.

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.