by Calculated Risk on 12/15/2010 07:35:00 AM

The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 0.7 percent from the previous week. This is the fifth straight weekly decline for the Refinance Index. The seasonally adjusted Purchase Index decreased 5.0 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages increased to 4.84 percent from 4.66 percent, with points increasing to 1.34 from 0.94 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

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

The four-week moving average of the purchase index is at about the levels of 1997 - and about 17% below the levels of April this year - suggesting weak existing home sales through the end of the year and into January.

by Calculated Risk on 12/14/2010 11:07:00 PM

The Senate will "convene and resume consideration" of the tax legislation tomorrow at 10 AM ET. There will be some posturing debate, followed by the vote. The bill is expected to pass the House within a few days.

Earlier today:
• NFIB Small Business Optimism Index Rises. NFIB graphs here.
• Retail Sales increased 0.8% in November
• FOMC Statement: No Change
• Lawler: Early Read on November Existing Home Sales: 4.57 million SAAR

Wednesday:
• 7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.
• 8:30 AM: Consumer Price Index for November.
• 8:30 AM: NY Fed Empire Manufacturing Survey for December.
• 9:15 AM ET: The Fed will release Industrial Production and Capacity Utilization for November.
• 10 AM: The December NAHB homebuilder survey.

Best to all
posturing

by Calculated Risk on 12/14/2010 07:14:00 PM

From "Soylent Green is People":

My favorite word of the day, remarked by another LO, is "gruesome". That's what's going on in the mortgage market.
...
A "true" -0- point, -0- lender fee refinance rate is in the mid 5's which is wholly unappealing to consumers. Benchmark FHA 30 fixed loans are in the 4.75% rate range, also for 1.0 point origination.

From economist Tom Lawler:

The US MBS market had a very bad day, and secondary market yields surged from early this morning. For example, Freddie Mac’s required net yield on a 60-day commitment to purchase conventional conforming 30-year fixed-rate mortgages went from 4.50% at 8:30 this morning to 4.64% at 3:00 PM. For Freddie “PMMS” mortgage rate followers, such a level would, if sustained, suggest that next week’s “Freddie 30-year primary mortgage market rate” would be somewhere in the neighborhood of 4 7/8% and 0.8 point.

Usually I track Freddie Mac's Primary Mortgage Market Survey® (PMMS®) and it appears 30 year rates will be pushing 5% this week. "Gruesome" is the word for those in the mortgage industry, especially for refinance activity.

by Calculated Risk on 12/14/2010 04:27:00 PM

CR Note: This is from housing economist Tom Lawler:

"Based on available data I’ve seen so far, I estimate that existing home sales ran at a seasonally adjusted annual rate of 4.57 million in November, up 3.2% from October’s pace, though down 29.6% from last November’s tax-credit-goosed pace. The YOY % decline in sales on an unadjusted basis should be around 27.2-27.3%, with the “SA/NSA” difference related to the calendar/different business day counts.

The incoming data from MLS/realtors/boards are broadly consistent with the realtor.com data pointing to a 3.4% drop in the existing homes-for-sale inventory in November, and if anything the local reports suggest the possibility of a somewhat larger decline."

CR Note: A 3.4% decline in inventory, and sales of 4.57 million SAAR would put the months-of-supply at about 9.8 months in November. That would follow four straight months of double digit supply. Based on this early forecast, inventory would be up about 6% YoY.

Sales are seasonally adjusted, but inventory is not. There is a clear seasonal pattern for inventory (inventory will be even lower in December as sellers take their homes off the market for the holidays). So the seasonal decline in inventory makes the months-of-supply look better.

This is about the same level of sales as in September. Here is the graph gallery for existing home sales through October.

Existing home sales for November will be released on Wednesday December 22nd at 10 AM ET.

by Calculated Risk on 12/14/2010 02:15:00 PM

• The target range for the federal funds rate remains at 0 to 1/4 percent
• The policy of reinvestment of principal payments remains
• no change to the plan to purchase an additional $600 billion of longer-term Treasury securities by the end of June 2011.
• the key sentence "likely to warrant exceptionally low levels for the federal funds rate for an extended period" remains

From the Federal Reserve:

Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Voting against the policy was Thomas M. Hoenig. In light of the improving economy, Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

by Calculated Risk on 12/14/2010 12:36:00 PM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008. My thanks to Jim Kennedy and the other Fed contributors for the previous MEW updates. For those interested in the last Kennedy data, here is a post, and the spreadsheet from the Fed is available here.

The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity (hence the name "MEW", but there is little MEW right now!), normal principal payments and debt cancellation.

Click on graph for larger image in new window.

For Q3 2010, the Net Equity Extraction was minus $86 billion, or a negative 3.0% of Disposable Personal Income (DPI). This is not seasonally adjusted.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding declined sharply in Q3, and this was probably mostly because of debt cancellation per foreclosure and short sales, and some from modifications, as opposed to homeowners paying down their mortgages. Note: most homeowners pay down their principal a little each month unless they have an IO or Neg AM loan, so with no new borrowing, equity extraction would always be slightly negative.