by Calculated Risk on 12/24/2014 07:37:00 PM

30 year mortgage rates moved up a little today, but are way down from 4.60% a year ago.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Match December Highs

Mortgage rates continued higher today as lenders opted for typically conservative holiday pricing strategies. The bond markets that most directly influence mortgage rates improved slightly from yesterday's precipitous weakness. Normally, those underlying market movements do more to move rates than anything else, but in cases where lenders are getting caught up to abrupt market changes or when they're protecting against uncertainty associated with long holiday weekends, their individual strategies can result in higher rates in spite of market movements suggesting lower rates. That's the case today, and it puts the average conforming 30yr fixed rate quote at 4.0%, matching the previous high from December 5th.

There's no way to know if rates will move higher or lower next week (don't expect much change this Friday). What we do know is that rates would improve if trading levels merely held flat between now and then. In other words, there's a bit of extra negativity baked into current rate sheets, and if markets manage to hold their ground or improve heading into the new year, we would get some of the recent losses back. To be clear, that's something that makes sense to HOPE for, but isn't justification to forgo locking your rate unless you're prepared to lock at even higher rates if the market happens to move against you.

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 12/24/2014 03:01:00 PM

Here is a review of the Ten Economic Questions for 2014.

There are always many questions for the new year. There are international economic issues with Russia in recession, Europe struggling and China slowing. There are always problems in the middle east, North Korea, and in other regions.

In the U.S., this is an odd year (no election), and Congress might threaten the economy again.  And something might surprise us again (did anyone see yields dropping this far in 2014?).

Here are my ten questions for 2015. I'll follow up with some thoughts on each of these questions.

1) Economic growth: Heading into 2015, most analysts are pretty sanguine.   Even with contraction in Q1, 2014 was a decent year (GDP will grow around 2.4% in 2014).  Will 2015 be the best year of the recovery so far?  Could 2015 be the best year since the '90s?  Or will 2015 disappoint again?

2) Employment:  With one month to go, 2014 is already the best year for employment growth since the '90s.   Will 2015 be as strong?  Or will job creation slow in 2015?

3) Unemployment Rate: The unemployment rate was at 5.8% in November, down 0.9 percentage points year-over-year.  Currently the FOMC is forecasting the unemployment rate will be in the 5.2% to 5.3% range next December.  What will the unemployment rate be in December 2015?

4) Inflation: The inflation rate is still running well below the Fed's 2% target. Will the core inflation rate rise in 2015?  Will too much inflation be a concern in 2015?

5) Monetary Policy:  The Fed completed QE3 in 2014, and now the question is will the Fed raise rates in 2015?  If so, when?  And by how much?  The Fed Funds rate has been at 0 to 0.25% since December 2008.

6) Real Wage Growth: Last month I listed a few economic "words of the year" for the last decade.  I finished with: "2015: Wages (Just being hopeful - maybe 2015 will be the year that real wages start to increase)". Will real wages increase in 2015?

7) Oil Prices: Declining oil prices and falling bond yields were two of the biggest stories of 2014.  Will oil prices continue to decline in 2015?

8) Residential Investment: Residential investment (RI) picked was up solidly in 2012 and 2013 - up 13.5% and 11.9% respectively - but RI was only up 1.6% through Q3 2014.   Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  How much will RI increase in 2015?  How about housing starts and new home sales in 2015?

9) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up about 5% or so in 2014 (after increasing about 12% nationally in 2013).   What will happen with house prices in 2015?

10) Housing Inventory: It appears housing inventory bottomed in early 2013.  Will inventory increase further in 2015, and, if so, by how much?

There are other key questions, but these are the ones I'm thinking about now.

by Calculated Risk on 12/24/2014 10:52:00 AM

The automakers will report December vehicle sales on Monday, Jan 5th. Sales in November were at 17.1 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in December might be close to 17 million SAAR again.

Note:  There were 26 selling days in December this year compared to 25 last year.

Here are a few forecasts:

From WardsAuto: Forecast: December Sales Set to Reach 10-Year High

A WardsAuto forecast calls for U.S. automakers to sell 1.51 million light vehicles in December, which would be the second-highest December sales tally since at least 1980, just behind December 2004’s 1.53 million. ... The forecast puts the seasonally adjusted annual rate of sales at 16.95 million-units, within a hair of breaking the 17 million mark for two consecutive months for the first time since June and July 2005.

From J.D. Power: Vehicle Sales Forecast Increases for 2014 and 2015; December Retail SAAR Highest Since 2006

Total light-vehicle sales in December 2014 are expected to reach 1.5 million units, a 6 percent increase, compared with December 2013. [Total forecast 16.7 million SAAR]
...
For 2015, LMC Automotive has raised its forecast to 17.4 million units from 17.2 million, which is a 3 percent growth from 2014.

From Kelley Blue Book: New-Vehicle Sales To Jump Nearly 10 Percent In Best December Since 2004; Kelley Blue Book Forecasts 16.9 Million SAAR In 2015

In December, new light-vehicle sales, including fleet, are expected to hit 1,490,000 units, up 9.8 percent from December 2013 and up 14.7 percent from November 2014. The seasonally adjusted annual rate (SAAR) for December 2014 is estimated to be 16.7 million, up from 15.4 million in December 2013 and down from 17.1 million in November 2014.

And on 2015 from TrueCar: TrueCar projects 2015 U.S. new auto sales to reach decade-high 17 million, set all-time record revenue of $553 billion

TrueCar, Inc. ... expects a healthy U.S. auto industry in 2015 with sales of new cars and trucks rising at least 2.6 percent to 17 million units, the highest level since 2005.

Another strong month for auto sales.

by Calculated Risk on 12/24/2014 08:50:00 AM

From the DOL reported:

In the week ending December 20, the advance figure for seasonally adjusted initial claims was 280,000, a decrease of 9,000 from the previous week's unrevised level of 289,000. The 4-week moving average was 290,250, a decrease of 8,500 from the previous week's unrevised average of 298,750.

There were no special factors impacting this week's initial claims

The previous week was unrevised.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 290,250.

This was lower than the consensus forecast of 290,000, and the level suggests few layoffs.

by Calculated Risk on 12/24/2014 07:01:00 AM

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

Mortgage applications increased 0.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 19, 2014. ...

The Refinance Index increased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.02 percent, the lowest level since May 2013, from 4.06 percent, with points increasing to 0.26 from 0.21 (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.

The refinance index is down 72% from the levels in May 2013.

Even with the general decline in mortgage rates, refinance activity is very low this year and 2014 will be the lowest since year 2000.  Rates would have to decline significantly for there to be a large refinance boom.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down 1% from a year ago.