March’s mortgage bond issuance was the second lowest since the early 2000s, according to the latest Securitization Weekly report from Bank of America (BAC).
March saw only $54 billion in mortgage bonds issued, the smallest amount since the inception of the third round of quantitative easing.
“The absence of the first-time homebuyer flags a secular shift reflective of lower affordability and tight lending standards,” Bank of America’s report states.
Bank of America suggests that the absence of the first-time homebuyer in the market could have a lasting impact on mortgage bond technicals beyond the impact of the harsh winter and the temporary dent to recent existing home sales.
With home prices on the rise and lending standards tightening, first-time homebuyers represent less than 28% of the market, down from a 36% market share in May 2011, the analysts state.
“The importance of the first-time homebuyer is key as mortgage purchase volumes will shape the technical picture for agency MBS and set the backdrop for the impending ledger shift from the public (the Fed) to private investors,” the report states.
Despite these seemingly negative indicators, Bank of America suggests that 2014’s projected home purchase volume is on a predicted pace.
“Purchase volumes year-to-date 2014 of $105 billion is on pace to fall within the upper end of this historical range, likely to be around $475 billion,” the report states. This volume is still drastically lower than the nearly $1 trillion of purchase volume in 2005, although that amount was supported by subprime lending and adjustable rate mortgages.
But to pass $500 billion in purchase volume, BofA suggests that a mix of lower mortgage rates, higher affordability and easier lending standards would be required. “None of which appears forthcoming in the near term,” the report states.
“At the expected rate, purchase volumes will comprise between 55 to 60% of MBS issuance, forecasted at $850 billion,” the report states. “This transition from a refinance to purchase dominated issuance landscape is playing in tandem with the progression of the taper. Falling issuance has outpaced the impact of the taper thus far. Going forward, as the taper progresses into the fall, the stock effect of the Fed’s portfolio will dominate the flow effect.”
This report comes on the heels of news that mortgage originations fell to the lowest level in 14 years, according to Black Knight Financial Services.
“February’s data showed the continued trend of declining origination activity we’ve been observing since mid-2013, with monthly originations falling to their lowest recorded point since at least 2000,” said Herb Blecher, senior vice president of Black Knight’s Data and Analytics division. “In spite of this decline, residential real estate sales have remained strong due at least in part to investor activity and the fact that cash sales account for almost half of all transactions.”
With cash investors supporting the home sales market and credit standards showing little sign of easing, the amount of mortgage bonds issued may continue to decrease in the short term.