Paper Money - A US Real Estate Bubble Blog

Unemployment Mashup – MA vs. RI December 2008

Posted: 23 Jan 2009 07:54 AM CST

Subtitle: Thar She Blows!

As I had noted in my prior posts, historically it has been very unusual for there to be more than a 1.5% difference (either more or less) between the unemployment rates if Massachusetts and Rhode Island.

Recently though, we have seen a historically unusual spread between Rhode Island's high and accelerating rate and Massachusetts' far lower but now quickly rising rate.

In fact, the current 3.1% spread continues to exceed all spreads seen in at least 40 years.

This indicates that either Rhode Island's current rate would need to fall dramatically or the Massachusetts rate would need to increase sharply…. My sense, especially in light of the financial turmoil seen since September, is that Mass will be the one playing catch-up.

Today's MA and RI state unemployment reports show that, in December, the Rhode Island unemployment rate rose significantly again to 10% while the Massachusetts rate jumped dramatically to 6.9%.

In December, Massachusetts experienced the largest year-over-year increase in unemployment since the recessionary environment that followed the tech-led dot-com bust jumping one full percentage point and clearly indicating that Mass has now entered a period of truly explosive unemployment growth.

Reading Rates: MBA Application Survey – January 22 2008

Posted: 22 Jan 2009 10:11 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 35 basis points since last week to 5.24% while the purchase application volume declined 2.47% and the refinance application volume slumped 12.44% 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 to January 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).