Today, mortgage purchase application data was released for the week ending May 5. The best way to gauge real demand for existing home sales is to look at the year over year growth in the mortgage purchase application data to see directional demand curve for housing.
The recent data supports the trend that:
- 2017 is the best year on the cycle for mortgage demand
- Outside of 1 negative print and 2 flat prints, we have seen consistent single digit growth year over year in mortgage purchase applications. Data from last week 6% year over year growth.
- Even though we have over 155,000,000 people working, mortgage rates are under 5% since early 2011, unemployment claims are at 4 decade lows , job openings are at 5,700,000 with the longest job expansion ever and we are on pace to have the longest economic expansion ever– mortgage demand for 2017 is lower then what we saw back in 1998.
From Calculated Risk
http://www.calculatedriskblog.com/2017/05/mba-mortgage-mortgage-applications.html
The percentage of buyers purchasing homes with cash has risen year over year on few of the existing sales report. I would keep a close watch on this trend. I expected the number of cash buyers to fall as a percentage of total sales, not grow. If this trends continues, look for demand in existing home to hit new cycle highs easily.
Last year at this time, purchase applications were posting growth of 25%, year over year in the heat months from 2nd week of January to the first week of May. This year over year growth has been negative 1% to 8% growth. We are still seeing growth in mortgage demand but not at the heated pace last year. For 2017 I wasn’t looking for any growth in existing home sales with a 545,000,000 number. However, that was based on cash buyers being 16%-19% of the total sales not the 20% + we are seeing this year. So look for cycle highs in existing home sales if this trend continues.
Housing starts have stuck to it’s slow and steady pace of growth for many years and don’t look for any changes on that front.
With new home sales still showing growth , we will have another year of 6,000,000 total homes sold with a growing number of mortgage buyers. We will also have better demographics to support more home purchases from mortgage buyers in a few years.
Demographics matter!
On the economic front, it’s been a boring year.
Unemployment claims are still very low and show zero sign of stress. The uptick in oil prices has caused more rigs to come back on line and mining output is growing again. We have seen a hit to the retail job sector due to some store closings but its too small to matter to the general economy.
From Doug Short
https://www.advisorperspectives.com/dshort/updates/2017/05/04/weekly-unemployment-claims-down-19k-better-than-forecast
Job Openings are at 5,700,000 and the quit % is still at cycle high of 2.1%. Construction job openings are falling and that is a good thing for housing. No sign of stress in this data line either.
From Doug Short
https://www.advisorperspectives.com/dshort/updates/2017/05/09/job-openings-labor-turnover-clues-to-the-business-cycle
Leading Economic Indicator looks healthy and the rebound in commodity prices has boosted the PMI sector. When leading economic indicators fall for 4-6 months straight, then you can raise a red flag, but that’s not happening in 2017.
From Doug Short
https://www.advisorperspectives.com/dshort/updates/2017/04/20/conference-board-leading-economic-index-continued-economic-growth
Don’t over hype the oil rebound because it’s working from a very low base. The PMI rebound in the U.S. should be taken in that context.
From Doug Short
https://www.advisorperspectives.com/dshort/updates/2017/04/28/regional-fed-manufacturing-overview-april-update
U.S. Confidence data has hit cycle highs from a massive spike due to the Presidential election.
Example of two confidence metrics:
From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2017/05/09/nfib-small-business-survey-index-dips-again-in-april-still-high
This is the simple truth, all conservatives were drunk happy when Trump won. His presidency hasn’t led to 4% growth, more hiring or a release of animal spirits. The economy looks pretty much the same today as it did in 2016. If you truly believe we were going to grow 4% , create 400,000 jobs a month because 100,000,000 people are out of work and looking for jobs, shame on you!
On the lending side of things:
– Car sales are not going to grow in 2017 but they will not collapse either.
-Refinance market is getting whacked which is no surprise. Look for some layoffs in the mortgage side of the business. Refinances are down big, year over year. The supply of rate and term refinances are low while rates are above 3.75%.
You’re seeing a rise in credit card and car loan delinquencies on the lowest quality credit pool. This shouldn’t be a surprise either, but note this is happening in an up cycle. Some delinquencies happened in oil states when manufacturing went into a recession, which should have been expected. However, keep an eye out if delinquencies move toward A-paper loans.
On the Job market front, I was expecting monthly job creation numbers to be between 140K-170K for 2017. The 6 month avg is roughly at 171K . The longest job expansion cycle continues.
More on that here
https://loganmohtashami.com/2017/05/05/longest-job-expansion-continues-79-months/
With oil between $45 -$55 , there is not much real direction coming from the oil market either. The 10-year yield for the majority of 2017 has been between 2.27% -2.62%.
Unit labor cost are rising but not getting out of hand in context of this economic cycle.
Nonfarm business unit labor costs increase 2.8 percent from Q1 2016 to Q1 2017 https://go.usa.gov/x56v2 #BLSdata
It’s pretty boring out there in economic land considering the crazy amount of political news.
The Vix ( Volatility Index) is at 10 which means the stock market doesn’t see much risk in the markets as high yield debt risk went away when oil prices rebounded.
http://stockcharts.com/h-sc/ui?s=$VIX
In short, boring is good for the general economy.
Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his own facebook page https://www.facebook.com/Logan.Mohtashami