Archive for the ‘Fed and Economy Watch’ Category

Borrower activity continued to pick up last week as interest rates retreated to September levels and mortgage applications extended their recent winning streak. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of application volume, increased 1.6 percent on a seasonally adjusted basis during the week ended December 7.  On an unadjusted basis, the Index lost 1 percent from the previous week's level. The Refinance Index rose 2 percent compared to the week ended November 30, and the share of applications that were for refinancing bettered the previous week's 9 month high of 40.4 percent, rising to 41.5 percent.  The seasonally adjusted Purchase Index increased for the fourth straight week, this time by 3 percent. 

CoreLogic reports that mortgage delinquency rates were little changed in September.  The percentage of mortgage loans that were 30 or more days delinquent and including those in the process of foreclosure declined by 0.6 percentage point on an annual basis, to a national rate of 4.4 percent. Early delinquencies, those 30 to 59 days past due were down from 2.4 percent in September 2017 to 2.2 percent.  Other delinquency rates are reflected in the graphic below. Serious delinquencies, those more than 90 days past due or in foreclosure were either down or unchanged in every state.  Rates however increased in 10 metro areas.

We know that home price growth is slowing, and cash-out refinancing has been coming back, still it is a bit of a stunner to find that homeowner equity actually declined in the third quarter of this year.  Black Knight's current issue of its Mortgage Monitor reports that the amount of total equity (home value net of mortgage balance) held nationally by homeowners at the end of the third quarter was down by $160 billion compared to the second quarter of the year and now totals $9.8 trillion. Of that total, $5.9 trillion is considered "tappable," that is equity that can be withdrawn by the homeowner without hitting a maximum 80 percent combined loan-to-value (CLTV) ratio. 

Fannie Mae's Home Purchase Sentiment Index (HPSI) for November rose slightly, but within the 0.5-point increase was some increased confidence about personal finances and the wisdom of buying a home.  The index, which consolidates responses from a subset of questions on the company's National Housing Survey, rose to 86.2 from 85.7 in November. The index is 1.6 points lower than in December 2017. A survey high record was set in the net share of Americans who reported their income was up significantly over the last 12 months.  A 5-point increase brought the net share to 24 percent. Fifty-seven percent of respondents told pollsters it was a good time to buy a home while 34 percent disagreed.  This resulted in net positive responses of 23 percent, up two points from October.

Access to mortgage credit moved higher in November, largely due to improved access to conforming mortgages. The Mortgage Bankers Association's Mortgage Credit Availability Index (MCAI increased 1.1 percent to 188.8. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.  The Conventional MCAI increased (2.4 percent) and the Government MCAI decreased (0.1 percent). Of the component indices of the Conventional MCAI, the Jumbo MCAI rose 1.1 percent, while the Conforming MCAI gained 4.0 percent.  "The supply of credit continues to drift higher, driven once again by growth in the conventional credit space, while credit supply in government loans was essentially unchanged from the previous month," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. 

While there has been a lot of talk since the recovery took hold about the lack resiliency in the residential construction sector, the issue is now moving from an academic discussion to one on the verge of alarm.  As Freddie Mac's Economic and Housing Research Group writes in the company's Insights blog, "The inadequate level of U.S. housing supply is a major challenge facing the housing market in 2018 and likely for years to come." The Insights' authors, Sam Khater, Chief, and Len Kiefer, Deputy Chief Economists, and Ajita Atreya and Venkataramana Yanamandra, both senior quantitative analysts, estimate the U.S. needed 370,000 more than the 1.25 million units that were added to the stock in 2017 to satisfy demand. 

It is often billed as the most important and consequential financial decision a household can makes, so it probably follows that buying a home should not be a quick one. Findings from the National Association of Home Builders' (NAHB's) Housing Trends Survey Report indicate that prospective home buyers take the decision seriously.  They are also apparently willing to take their time. In its fourth and final report derived from the third quarter survey, NAHB analyst Rose Quint says that 13 percent of those polled indicated they intend to buy a home in the next 12 months and of those, almost half (46 percent) have already begun the search.  Of those, 54 percent have been trying to find the right home for at least three months.

While their behavior thus far doesn't do much to validate it, a survey by Bank of America (BoA) finds that Millennials put a high priority on homeownership.  In fact, among members of that generation responding to the company's 2018 Homebuyer Insights Report, 72 percent put owning a home near the top of their list, surpassed only by "being able to retire." Other important milestones named were traveling the world (61 percent) and getting married (50 percent), trailed by having children at 44 percent.

Construction spending was lower on a month-over-month basis in October, but an increase in public sector spending held the overall decline to a minimum.  The U.S. Census Bureau said that total expenditures on spending nationwide was at a seasonally adjusted annual rate of $1.309 trillion, down 0.1 percent from the revised (from $1.330 trillion) September rate of 1.311 trillion.  Overall spending has been relatively flat for some months, but spending is up year-over-year by 4.9 percent.

On a non-adjusted basis total spending was $117.333 billion during the month compared to $117.898 in September.  For the year-to-date (YTD) through October total spending of $1.044 trillion is 5.1 percent higher than through the first 10 months in 2017.

Pending  home sales in October failed to build on their small September gains - only the second uptick in six months. The Pending Home Sales Index (PHSI) from the National Association of Realtors® (NAR) declined 2.6 percent to 102.1 in October from 104.8 the prior month.  The index, a forward-looking indicator based on new purchase contracts for existing homes, was down even more significantly on a year-over-year basis, falling for the tenth straight month, this time by 6.7 percent. Given the PHSI's recent track record, analysts weren't expecting much improvement. Those polled by Econoday had made predictions in the range of -0.5 percent to 1.0 percent, but the consensus was for the index to remain at the September level.