Paper Money - A US Real Estate Bubble Blog

Reading Rates: MBA Application Survey – January 07 2008

Posted: 07 Jan 2009 08:18 AM CST

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage increased 4 basis points since last week to 5.07% while the purchase application volume increased 7.26% and the refinance application volume declined 12.32% compared to last week's results.

It's important to note though that although the steady decline in mortgage rates has likely played a significant role in the large increases in refinance application volume, it's also altogether possible that the MBAA has some difficulty in seasonally adjusting their numbers around the November and December periods.

As you can see on the charts below, November through January usually brings some erratic spikes to the volume indices but the cause, at least in some part, is likely the result of troubles seasonally adjusting a noisy weekly series and not an actual spontaneous doubling of refinance activity.

As was noted last year, it's probably sensible to wait until February to draw a final conclusion.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% "rule of thumb") on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).

The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).

The Big Apple Goin’ Bust!

Posted: 06 Jan 2009 04:39 PM CST

The recent article titled "What's in Store for Regional Banks" by fellow blogger and expert mortgage analyst Ira Artman is a superb example of macroeconomic and credit modeling and forecasting… I would encourage all to give it a good read.

Ira demonstrates very clearly that community banks in the New York and New Jersey metro area are likely facing a prolonged period of rising non-performing loan ratios regardless of the quality (or touted quality) of the bank's "prime" loan portfolio or its management

What's driving this "prime" mortgage portfolio stress is simple… significant unemployment and falling home prices.

Pending Home Sales: November 2008

Posted: 06 Jan 2009 03:33 PM CST

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for November showing a 5.3% year-over-year decline in pending home sales nationally firmly indicating that the widespread collapse of consumer confidence that resulted from the economic turmoil experienced in September thru November has worked to drive home sales back into a sustained decline.

It's important to note that sales in the West region have deteriorated significantly since September falling another 2.4% on a month-to-month basis likely as a result of investors pulling back on purchases of foreclosed homes as it has become increasingly obvious that a bottom has not yet been reached in those markets and that prices are, in fact, headed lower.

As usual, NAR Senior Economist Laurence Yun continues his government bailout groveling while dishing up a whopping portion of self-interested spin suggesting that 2009 may bring a 10% increase in home sales.

"With a proper real-estate focused stimulus measure, home sales could rise more than expected, by more than 10 percent to 5.5 million in 2009, and easily begin to stabilize home prices in many parts of the country. Stable home prices will, in turn, lessen foreclosure pressures and lay the foundations for a solid economic recovery as the nation's 75 million homeowners regain confidence,"

The following chart shows the national pending homes sales index since 2005 compared monthly. Notice that each year, the months value is decreasing fairly consistently (click for larger version).

The following chart shows the national pending home sales index along with the percent change on a year-over-year basis as well as the percent change from the peak set in 2005 (click for larger version).

Note that in the above charts, I had to use the Not Seasonally Adjusted (NSA) data series as NAR changed the methodology for their Seasonally Adjusted (SA) series a while back and never republished the numbers.

Look at November's seasonally adjusted pending home sales results and draw your own conclusion: