Mortgage Purchase Applications & Recession Watch

PROFILE PIC

 

So far, So good.

The 2nd week of Jan to the first week of May are the heat months for purchase applications.  If you don’t see year over year growth during that time period then one can’t expect much growth that year.  So, far we are showing solid double digit growth, one month into our heat months for 2016 . On the other hand, mortgage demand during the same time frame has been very soft.

From Calculated Risk
http://www.calculatedriskblog.com/2016/02/mba-mortgage-applications-increased-in.html

MBAFeb102016

We can’t expect to see much refinancing activity this year.  Although mortgage rates continue to be relatively low, a lot of people refinanced their home loans  last year  when the 10 year yield moved to 1.64% before moving up to 2.50%.   Additionally, the bulk of the refinance activity came in 2012 when the 10 year got as low as 1.35%.

MBARefiFeb102016

Today, the 10 year yield had a print of 1.67% and we are getting closer to my key line of 1.60%. So far this has held but with negative rates around the world, it is possible, more now that in the past 3 years, that this level could be breached.

US 10y yields drop to 1.6732%, lowest yield since Feb2015 after strong auction.

10 TRIPLE BOTTOM

They key for existing homes sales this year will be falling cash buyers and rising mortgage buyers.  We can expect fewer cash buyers this year which will prevent total sales from rising too much farther than last year even though new mortgage buyers will offset some of the loss.  However,  mortgage demand growth for existing home sales should still  be positive, compared to last year,  because more would-be buyer have the capacity to own the debt.  Additionally, existing homes are much cheaper, than new homes. They may not have all the bells and whistles of a new home, but in general provide a much better value for money.

 

Recession Watch?

I made a you-tube click asking a raise of hands of who believes we are going into a recession 2016 since bonds yields, oil prices, and stocks were heading lower. So far, the usual cast of characters have all raised their hands pleading their recession 2016 case.

From Doug Short
http://www.advisorperspectives.com/dshort/updates/Current-Market-Snapshot

SPX-five-day

 

But, the key data lines, from my perspective aren’t showing a recession in 2016.

1. JOLTS  ( Job Opening and Labor Turner Survey)

5.6 Million Job Opening and quits rising to a cycle high  of 3.1 million, is a good sign for the economy. Although the quits number of the last report may be corrected lower,  the JOLTS data isn’t showing anything that would show a U.S. recession in 2016.

From Calculated Risk
http://www.calculatedriskblog.com/2016/02/bls-jobs-openings-increased-in-december.html

JOLTSDec2015

 

2.  Unemployment Claims

While it is true that claims are rising, this does not indicate a recession, yet. We have be mindful that the oil & commodity crash impacted a sector of our economy which is now shedding jobs. Business investment spending will have issues without the oil boom in play. Like Tech in 2000 and Housing in 2007, oil is our “over-investment” step-child of 2016.  Nevertheless, the slowdown in oil will not cause enough economic damage to create wide spread falls in consumption and a major down turn in the U.S. economy.

From Doug Short
http://www.advisorperspectives.com/dshort/updates/Weekly-Unemployment-Claims

weekly-unemployment-claims-since-2007 (1)

3. LEI  ( Leading Economic Indicator)

Keep an eye on this data line.   It’s a good one for predicting recessionary trends. We haven’ had a recession,  post 1969, without LEI falling out first.

http://www.advisorperspectives.com/dshort/updates/Conference-Board-Leading-Economic-Index

CB-LEI (1)

So, to sum it up, I don’t expect housing this year to boom, but we are seeing good purchase application growth, more mortgage buyers and less cash buyers. This shows that the economic cycle is producing  mortgage buyers—a good economic sign and not a recessionary one.

Fed Rate Hike Watch?

I am still sticking to my 2016 call that the Fed needs to see more CPI core inflation with ECI wage inflation before they hike rates. The strong dollar move from 2014 to March of 2015 has done some of the Fed’s policy work for them. As much as the Fed’s dots show rate hikes, follow the inflationary road for future rate hikes. Don’t listen to DOTS behind the curtain.

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1988 and is in a partnership with ZeneHome.com