by Calculated Risk on 7/31/2013 07:01:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 3.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 26, 2013. ...

The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier.
...
“Mortgage rates were little changed last week, but remain roughly one percentage point higher than they were three months ago,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Refinance application volume continues to decline, with the refinance index now more than 55 percent lower than its recent peak, reaching the lowest level in over two years. Applications for home purchases dropped for the fourth time in five weeks, but purchase volume is running about 5 percent higher than last year at this time.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) was unchanged at 4.58 percent, with points decreasing to 0.38 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.

The first graph shows the refinance index.

With 30 year mortgage rates up over the last 3 months, refinance activity has fallen sharply, decreasing in 11 of the last 12 weeks.

This index is down 57% over the last twelve weeks.

The second graph shows the MBA mortgage purchase index.  The 4-week average of the purchase index has generally been trending up over the last year (but down over the last several weeks), and the 4-week average of the purchase index is up about 5% from a year ago.

by Calculated Risk on 7/30/2013 09:06:00 PM

Here are two excellent articles. Really long term readers (back in 2005 and 2006) will remember my posts about contacting regulators about housing, and discussions of the Non-traditional Mortgage Guidance (when it was finally released). The first article mentions Janet Yellen's reaction to the guidance.  Yellen had the same reaction as Tanta to the guidance (my former co-blogger). The second article discusses when Yellen was more hawkish than Greenspan in the '90s.

From Cardiff Garica at FT Alphaville: Already-strong case for Yellen strengthens further, and a word about the inanity of “market” preferences

Alan Blinder:

Fast forward to her days leading the San Francisco Fed, where she warned, as early as 2005, that the titanic real-estate market was heading for an iceberg. Ms. Yellen was frustrated that the Fed’s Board of Governors would not even issue regulatory guidance to curb disgraceful lending practices like piggyback loans that exceeded 100% of the house’s value, or loans with little or no documentation. When the board finally did so, she was dismayed at how weak the guidance was. She later told the Financial Crisis Inquiry Committee: “You could take it out and rip it up and throw it in the garbage can.” The guidance, she added, “wasn’t of any use” to the San Francisco Fed.

And from Neil Irwin at the WaPo: Why we shouldn’t think of central bankers as hawks and doves

For example, Janet Yellen, the current Fed vice-chair, is viewed in markets as an uber-dove because she has been a strong advocate of the Fed’s unconventional monetary easing to try to help the job market. But it wasn’t always so. Larry Meyer served as a Fed governor with Yellen in the 1990s. In 1996, the two of them had concluded that the Fed needed to raise interest rates to fight the threat of inflation. They went to Alan Greenspan and told him of their concerns, threatening to dissent at a future meeting unless there was a rate increase. They lost the argument, but it is a sign that while Yellen may be a dove right now, the same would not be true in all states of the world.

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:15 AM, the ADP Employment Report for July. This report is for private payrolls only (no government). The consensus is for 179,000 payroll jobs added in July, down from 188,000 in June.

• At 8:30 AM, the BEA will release the advance estimate of Q2 GDP. The consensus is that real GDP increased 1.1% annualized in Q2. This report will includes a Comprehensive Revision from 1929 through 1st quarter 2013.

• At 9:45 AM, the Chicago Purchasing Managers Index (PMI) for July. The consensus is for an increase to 54.0, up from 51.6 in June.

• Ar 2:00 PM, the FOMC Meeting Announcement will be released. No change to interest rates or QE purchases is expected at this meeting.

Earlier on House Prices:
• Case-Shiller: Comp 20 House Prices increased 12.2% year-over-year in May
• Comment on House Prices: Real Prices, Price-to-Rent Ratio, Cities

by Calculated Risk on 7/30/2013 06:06:00 PM

The Case-Shiller house price indexes for May were released this morning. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close. Note: Zillow makes a strong argument that the Case-Shiller index is currently overstating national house price appreciation.

Zillow Predicts Another 12% Annual Increase in Case-Shiller Indices for June

The Case-Shiller data for May came out this morning and, based on this information and the June 2013 Zillow Home Value Index (released last week), we predict that next month’s Case-Shiller data (June 2013) will show that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) increased 12.1 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) increased 12 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from May to June will be 1.1 percent for the 20-City Composite and 1.2 percent for the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for June will not be released until Tuesday, Aug. 27.
...
The Case-Shiller indices are giving an inflated sense of national home value appreciation because they are biased toward the large, coastal metros currently seeing such enormous home value gains, and because they include foreclosure resales. The inclusion of foreclosure resales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed. We are seeing this issue especially in regions where home graphvalues fell drastically, producing a large number of foreclosures, which are now selling as normal sales after REOs (foreclosure resales) amidst extremely high home value appreciation. These areas include parts of California, Phoenix and Las Vegas. In contrast, the ZHVI does not include foreclosure resales and shows home values for June 2013 up 5.8 percent from year-ago levels. We expect home value appreciation to continue to moderate a bit in 2013, rising 5 percent between June 2013 and June 2014. Further details on our forecast of home values can be found here, and more on Zillow’s full June 2013 report can be found here.
...
To forecast the Case-Shiller indices, we use the May Case-Shiller index level, as well as the June Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with June foreclosure resale numbers, which Zillow also publishes more than a month prior to the release of the Case-Shiller index. Together, these data points enable us to reliably forecast the Case-Shiller 10-City and 20-City Composite indices.

The following table shows the Zillow forecast for the June Case-Shiller index.

Zillow June Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	June 2012	154.94	154.07	142.37	141.37
Case-Shiller (last month)	May 2013	169.69	170.62	156.14	157.01
Zillow Forecast	YoY	12.0%	12.0%	12.1%	12.1%
	MoM	2.2%	1.2%	2.3%	1.1%
Zillow Forecasts1		173.5	172.6	159.7	158.6
Current Post Bubble Low		146.46	149.61	134.07	136.85
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		18.4%	15.4%	19.1%	15.9%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 7/30/2013 03:40:00 PM

Some interesting comments on inventory in an article by Nick Timiraos at the WSJ: Home Prices Jump, but Headwinds Build

For now, inventories remain extremely tight in a majority of the nation's major housing markets. The Wall Street Journal's survey of quarterly housing-market conditions in 28 metro areas found that Phoenix, Seattle, Denver, and Sacramento, Calif., had less than a 2.5-month supply of homes for sale at the current sales pace. Dallas, Los Angeles, San Diego, Washington, D.C., and Orlando, Fla., had less than three months of supply, according to data compiled by John Burns Real Estate Consulting in Irvine, Calif.
...
There are signs inventory declines will ease as price gains increase. In Sacramento, Calif., the number of homes for sale in June stood 7.5% above the level of a year ago, while inventories in Atlanta rose 9.7%. ...

In Orange County, Calif., inventories have increased 68% since March, standing roughly unchanged from year-ago levels at the end of June and reversing what had been a large year-over-year drop. Steven Thomas, a local housing analyst, says buyers are growing frustrated because sellers are getting greedy. "There is a drought of properly priced homes," he wrote in a recent report. Reports of rising home prices "have enticed a herd of homeowners to come on the market who all have thrown discretion out the door."

Angela Creech, a real-estate agent with Redfin in Irvine, Calif., says she's refused more listings in the past month because sellers are asking for too much money. "There are more really unrealistic sellers," she said.

I think we've seen the bottom for inventories in many areas, but many of the new listings are overpriced (no offer in the first 30 to 60 days suggests the property is overpriced).

by Calculated Risk on 7/30/2013 12:45:00 PM

The Census Bureau released the Housing Vacancies and Homeownership report for Q2 2013 this morning.

This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply, or rely on the homeownership rate, except as a guide to the trend.

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate was unchanged at 65.0% in Q2.

I'd put more weight on the decennial Census numbers and that suggests the actual homeownership rate is probably in the 64% to 65% range - and given changing demographics, the homeownership rate is probably close to a bottom.

The HVS homeowner vacancy rate decreased to 1.9% in Q2 from 2.1% in Q1. 

It isn't really clear what this means. Are these homes becoming rentals?

Once again - this probably shows that the trend is down, but I wouldn't rely on the absolute numbers.

The rental vacancy rate declined in Q2 to 8.2%, from 8.6% in Q1.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate - and Reis reported that the rental vacancy rate is at the lowest level since 2001.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey. Unfortunately many analysts still use this survey to estimate the excess vacant supply. However this does suggest that most of the bubble excess is behind us.

Earlier on House Prices:
• Case-Shiller: Comp 20 House Prices increased 12.2% year-over-year in May
• Comment on House Prices: Real Prices, Price-to-Rent Ratio, Cities