Monday Morning Cup of Coffee takes a look at news coming across HousingWire's weekend desk, with more coverage to come on bigger issues.
Last week's better-than-expected jobs report kept the two-year cumulative job growth numbers near the highest levels of the past sixty years – which was no small accomplishment.
However, the combination of low mortgage rates and strong jobs growth continues to do little to spur purchase mortgage demand: the latest MBA purchase application reading of 173 is comparable to 1995-1996 levels, when the economy was less than half its current size.
The repressed lending activity on what is for most Americans the biggest ticket purchase they will make shows that credit creation and money velocity remain depressed.
Bank of American/Merrill Lynch analyst Chris Flanagan says this is a feature, not a bug.
“As we have written many times, whether it was recognized or not, weak mortgage credit creation effectively was the ‘plan’ when the post-crisis regulatory and capitalization framework was implemented,” he says. “Strong jobs and weak mortgage production should result in continued curve flattening, with 2s-10s expected to hit zero by mid- to late-2016, as the Fed inevitably hikes short term rates, and the back end remains anchored.
“Until we see mortgage purchase apps break out to the upside, we think interest rates need to remain at least near current levels,” he says. “The rate range scenario is generally a positive one for securitized products. For agency MBS, it keeps prepayment, extension and supply concerns all at a minimum. Although spreads have declined over the past month, we think there is room for a further grind tighter and maintain an overweight on the basis.”
On Monday the National Association of Home Builders will release its housing market index – the builder confidence survey – for March. The index posted in February at an index level of 55 versus 57 in January. The index has averaged 56 since first turning into the plus column in July last year.
But a negative in the report was a further drop in the buyer traffic component, down 5 points to 39 for the lowest reading since July.
The NAHB housing market index is based on a survey in which respondents from this organization are asked to rate the general economy and housing market conditions. The housing market index is a weighted average of separate diffusion indexes: present sales of new homes, sale of new homes expected in the next six months, and traffic of prospective buyers in new homes.
How did housing starts fare in February? We’ll find out on Tuesday. Housing starts slipped in January on weakness in single-family starts. Housing starts declined 2% in January after a 7.1% jump the month before.
The 1.065 million unit pace was up 18.7% on a year-ago basis. Single-family starts dropped 6.7% after a 7.9% boost in December.
The slow pace of permits suggests that housing activity is muted. Housing permits dipped 0.7%, following no change in December.
The Federal Open Market Committee will almost certainly – as discussed above and by every analyst opinion out there – announce on Wednesday afternoon that it will leave the policy rate unchanged.
Also, the Federal Reserve will release its quarterly forecasts at the same time as the statement. Traditionally, the Fed forecasts covered GDP, the PCE price index, and the civilian unemployment rate.
However, the forecast report additionally now includes forecasts for the appropriate timing of the next change in the fed funds rate and the expected fed funds rate at the end of the next two years.
No banks were closed the week ending March 13, according to the FDIC.