Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on bigger issues.
The slowdown in mortgage purchase applications is weighing on analysts. Mortgage purchase apps have faltered, and that limits upside risk for mortgage rates, according to the analyst team lead by Chris Flanagan at Bank of America/Merrill Lynch.
This last week's sharp drop in the Mortgage Bankers Association purchase index was reminiscent of the early 2014 drop. Remarkably, purchase application volume is at the same level of early 2014, even though mortgage rates are more than 50 basis points lower.
“Recent bear steepening of rates should give way to flattening, driven by front-end weakness due to looming Fed rate hike. The agency basis still has more tightening potential, as supply and prepay risk subside,” Flanagan wrote in a client note.
“We continue to like down in credit, lower dollar priced non-agency RMBS. We think the reduced risk layering in CRT is often overlooked. We revisit our risk score which captures risk layering,” they write.
Flanagan says that strength in the labor market should lead to a mid-year rate hike by the Fed, but he does not see that strength translating into increased demand for purchase mortgages.
“This leads us to reiterate the view we held for most of 2014: housing is not strong enough to absorb meaningfully higher long-term interest rates, including mortgage rates. As a result, we believe longer-term rates remain biased to the downside, even from today's current low levels,” he says. “Upward momentum could drive long-term rates modestly higher over the near term, but, in our view, the fundamental reality of weak mortgage demand will likely halt the rise before long. We think the chances are good that rates settle into a range over the next few months, similar to the range trade on the 10yr in February-April 2014, and that we are currently near the high end of the range. Similarly, we think the recent yield curve steepening is likely to give way once again to a flattener; we still believe the 2yr-10yr spread will be close to zero by mid to late 2016. We are not fazed by the recent short term steepening; the bull flattening was overdone.”
Ice is no longer in the cooler. Robert Van Winkle, aka Vanilla Ice, was released from jail and now says that his arrest for burglary of a million-dollar foreclosure adjacent to a home he was renovating for his DIY network show was “blown out of proportion.” He didn’t deny the burglary, nor did he explain how the property wound up in his possession – he just says it was “blown out of proportion.” Kinda like his fame for being a one-hit wonder, one supposes.
Looking ahead, it’s a busy and, frankly, exciting week for mortgage finance and housing. The week kicks off with a critically important conference right in HousingWire’s own backyard. Starting Monday and running through Thursday, it’s the MBA's National Mortgage Servicing Conference and Expo 2015 at the Gaylord Texan center.
“Servicers have faced big challenges in the last few years. As the industry continues its transition toward new procedures and increased efficiencies, even bigger opportunities are on the horizon,” is the pitch.
HousingWire will be flooding the zone with coverage.
(Speaking of the MBA, check out MBA president and CEO David Stevens’ exclusive op-ed on how performance and quality should drive market share in mortgage servicing, rather than excessive capital standards and onerous regulations.)
On Monday we’ll see the report on existing home sales for January. Existing home sales popped up in December as expected, up 2.4% to an annual sales rate of 5.04 million versus a revised 6.3% decline in November to 4.92 million.
December's gain was led by single-family homes, which rose 3.5% to a 4.47 million rate. The gain in sales drew down available homes on the market to 1.85 million from 2.08 million, in turn sharply lowering supply on the market to 4.4 months from 5.1 months.
That lower supply points to the fact that January’s numbers probably will disappoint.
On Tuesday, we’ll see the S&P/Case-Shiller 20-city home price index for December. The index showed some life in November, rising 0.7% to match October's revised gain. Gains in the month were led by the largest region for home sales, the South, where Tampa, at plus 1.8%, and Atlanta, at plus 1.7%, showed particularly strong gains.
Gains in the West were also strong, led by San Francisco at plus 1.1%. Despite the strength in monthly sales, the year-on-year rate edged 2 tenths lower to plus 4.3%. This rate has been edging lower each month since November 2013 but the degree of the latest decline is very small and the downward curve is definitely flattening out in what is a positive indication that the comparison may soon begin to turn higher.
Wednesday will give us the new home sales report. New home sales surged 11.6% in December to a 481,000 annual rate. This followed a 6.7% drop in November. Though there were 2.3% more homes on the market in December, totaling 219,000, the gain in sales drew down supply relative to sales to 5.5 months from 6.0 months in November.
Skipping ahead further in the week, Housing & Urban Development Secretary Julian Castro will be making his second appearance before the Housing and Insurance Subcommittee of the House Financial Services Committee on Thursday morning at 10 a.m. ET to discuss the “Future of Housing in America.”
Also on Thursday, the Federal Housing Finance Agency will release its purchase-only house price index for December. The index gained 0.8% in November, following a 0.4% rise the month before.
The pending home sales index for January comes out on Friday. The index fell a very steep 3.7% in December after rising 0.6% the month before. All regions showed single digit declines in the month, including the two most closely watched regions, the South (down 2.6%) and the West (down 4.6%).
Another key indicator comes out on Friday. The first revision for the fourth-quarter GDP comes out. The advance GDP growth estimate for fourth-quarter GDP growth disappointed with a 2.6% printing, against analyst expectations of 3.2%. We’ll see how it spins out in the second printing.
No banks were closed the week ending Feb. 20, according to the FDIC.