Mortgage Applications for Home Purchases Rise
The upside to the selloff in stock markets is lower interest rates for the housing market. A drop in rates last week boosted mortgage applications for both refinances and home purchases, and interest rates continues to slide.
Total mortgage application volume for the week ending October 3rd rose 3.8 percent on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association (MBA). Refinance applications were 5 percent higher than the previous week, and purchase applications were 2 percent higher.
“The purchase index reached its highest level since July,” noted Michael Fratantoni, chief economist for the MBA. “The increase was led by a 3.7 percent increase in government purchase volume for the week.”
An increase in VA and FHA mortgage applications generally points to demand trumped up by first time home buyers which have been almost vacant from the market place, so this is a very encouraging sign for renewed momentum in housing demand at the lower-half of the pricing spectrum.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +44 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to decrease from the prior week. We saw our best rateson Wednesday and our worst rates on Monday.
We had a very interesting week with stronger than expected U.S. economic data, a look at the FOMC minutes and increased global weakness.
Initial Weekly Jobless Claims continue to show positive momentum in the labor market with much better reading than expected (287K vs est of 295K). The more closely watched 4 week moving average dropped to its lowest level since April 2006. Wholesale Inventories jumped 0.7% which was more than double the market expectations of 0.3% and is causing economists to increase their 3rd QTR GDP estimates. In a vacuum, these two events would have directly lead to worse MBS pricing.
But, we also had the release of the minutest from the last Federal Open Market Committee (FOMC), and MBS rallied on the perceived “dovish” tone. In the minutes we see that they discussed inflation (PCE) remaining below their 2% target rate for several years and that they viewed the global economic slowdown as a direct threat to future U.S. growth. Basically, long-bond traders viewed these discussions to mean that the Fed was not ready to raise interest rates anytime soon, which helped MBS improve which lead to lower mortgage rates and more than offset the positive U.S. economic data for the week.
Europe also helped our pricing as we saw declines in manufacturing in Germany and several other member countries. This as European Central Bank President Mario Draghi warned the leaders and governments of the Euro that they need to make sweeping changes in their own countries instead of bypassing taking action and relying on the ECB to carry the load.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|15-Oct||7:00 AM||MBA Mortgage Index||–||NA||3.80%|
|15-Oct||8:30 AM||Retail Sales||–||-0.20%||0.60%|
|15-Oct||8:30 AM||Retail Sales ex-auto||–||0.30%||0.30%|
|15-Oct||8:30 AM||Core PPI||–||0.10%||0.10%|
|15-Oct||8:30 AM||Empire Manufacturing||–||20.4||27.5|
|15-Oct||10:00 AM||Business Inventories||–||0.40%||0.40%|
|15-Oct||2:00 PM||Fed’s Beige Book||–||NA||NA|
|16-Oct||8:30 AM||Initial Claims||–||290K||287K|
|16-Oct||8:30 AM||Continuing Claims||–||2388K||2381K|
|16-Oct||9:15 AM||Industrial Production||–||0.40%||-0.10%|
|16-Oct||9:15 AM||Capacity Utilization||–||79.00%||78.80%|
|16-Oct||10:00 AM||Philadelphia Fed||–||19.8||22.5|
|16-Oct||10:00 AM||NAHB Housing Market Index||–||59||59|
|16-Oct||10:30 AM||Natural Gas Inventories||–||NA||105 bcf|
|16-Oct||11:00 AM||Crude Inventories||–||NA||5.015M|
|16-Oct||4:00 PM||Net Long-Term TIC Flows||–||NA||-$18.6B|
|17-Oct||8:30 AM||Housing Starts||–||1013K||956K|
|17-Oct||8:30 AM||Building Permits||–||1030K||998K|
|17-Oct||9:55 AM||Mich Sentiment||–||84||84.6
The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.