Reading Rates: MBA Application Survey – July 20 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage declined 1 basis point to 4.54% since last week while the purchase application volume declined 0.1% and the refinance application volume jumped a whopping 23.10% over the same period.

Given that we reached the end of the Feds QE2 intervention, it will be interesting to see how long rates trend in the next few months.

In any event, the purchase application volume remains near the lowest level seen in well over a decade while refinance activity continues to bounce around a bit.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

New Residential Construction Report: June 2011

Today’s New Residential Construction Report showed increases to both single family permits and starts from last month but a notable decline to permits from last year while starts showed the first (albeit slight) annual increase in thirteen months.

Single family housing permits, the most leading of indicators, increased a slight 0.2% on a month-to-month basis to 407K single family units (SAAR), dropping a notable 3.78% below the level seen in June 2010 and an astonishing 77.36% below the peak in September 2005.

Single family housing starts increased 9.4% to 453K units (SAAR), rising a slight 0.44% above the level seen in June 2010 and a stunning 75.15% below the peak set in early 2006.

With the substantial headwinds of elevated unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling real wages, an overhang of inventory and still falling home prices, the environment for “organic” home sales remains weak and likely very fragile.

Radar Watching: May 2011

As I have noted in the past, since the home price index data provided by Radar Logic is more timely, unadjusted and un-smoothed it is particularly useful for gaining deeper visibility over our housing markets.

As for the latest trends, it’s important to note that the 25-MSA Composite is continuing to show significant year-over-year declines and after having broken well below the low set in March of 2009 (double-dipping) earlier this year, continues to come off the low as the typical spring transactions begin to mount.

The latest data shows that as of mid-May, prices have declined 5.55% below the level seen in May 2010 while turning up a bit since the lows seen this February.

It will be interesting to see how far the spring buying can push prices but it's important to note that this seasonal factor will likely end in early July (as reported in September) when transactions begin to trail off into the summer months.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings July 2011

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing tepid increases across most measures with the composite HMI index climbing a meager two points since last month while the "buyer traffic" index remained near record lows as home builders continue to plod through the weakest activity seen in generations.

It's important to recognize that currently all measures are continuing to show epic weakness with even the strongest sentiment gain only slightly beating the level seen last year.

Clearly the new home market has seen another no-show start to the buying season with the typically strongest selling months (remember Bob Toll's analysis of the seasons) fully behind it.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

University of Michigan Survey of Consumers July 2011 (Early)

Today's early release of the Reuters/University of Michigan Survey of Consumers for July indicated a notable worsening of consumer sentiment with a reading of 63.8 falling 5.90% below the level seen last year while one year inflation expectations declined to 3.4%.

The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) plunged to 55.8, and the Current Economic Conditions Index slid to 76.3.

It's important to recognize that consumer sentiment has seriously eroded over the past few months and while pricing pressure from gasoline appears to be waning, consumer mood looks to be reflecting a more fundamental level of dissatisfaction with economic conditions.

Production Pullback: Industrial Production June 2011

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing slight flattening of sorts with total industrial production increasing just 0.19% from May but rising 3.41% above the level seen in June 2010.

Capacity utilization increased 0.08% from May but climbed 2.97% above the level seen in June of 2010 to stand at 76.71%

It's important to recognize that though the "recovery" is well over two years old, both industrial production and capacity utilization are notably below the peaks set in late 2007.

The Empire State Manufacturing Survey: July 2011

The Empire State Manufacturing Survey consists of a series of diffusion indices distilled from a monthly survey of New York regional manufacturing executives and seeks to identify trends across 22 different current and future manufacturing related activities.

Today’s report showed continued weakness and indicated contraction for current manufacturing activity with the current activity index remaining below zero at -3.76 while assessments of future activity improved with the future activity index climbing to 32.22.

Current prices paid declined to 43.33 while current new orders weakened to -5.54 and assessments of future new orders improved to 25.56.

Fake It Till You Make It Fed Policy

Listening to Bernanke over the last two days it should be clear that the Fed is going to go for another round of quantitative easing.

While the evidence for the next round of QE was only slight when I first noted Federal Reserve Bank of Atlanta Dennis P. Lockhart’s “posture of flexibility” position back in March, the potential became a near certainty by May with the oil spike, reemergence of the European debt crisis, the debt ceiling uncertainty and most importantly the double dip for the U.S. housing market.

As these and other issues work to shake confidence, it’s easy to see that the Fed will simply continue to work to bolster confidence using the only remaining tool it has, namely it’s “balance sheet”.

One way or another the Fed will implement an accommodative policy until it feels the “real” economy is function normally and can withstand shocks on its own.

The problem is though, there is nothing normal about an economy with a central bank lording over it just waiting for signs of failure and prepared to pump in liquidity at a moment’s notice…. The Fed is not instilling confidence, it’s creating dependency.

Japan’s “Lost Score” should provide ample evidence that a phony centrally manipulated economy is not the right solution to our economic problems.

What would be best for the economy now (and all along since 2008) is for the Fed to let the economy go and for all participants to face reality head on regardless of the recognized losses.

If hard times and recession comes as a result, so be it.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims July 14 2011

Today’s jobless claims report showed a decline to initial unemployment claims and an increase to continued claims as a rising trend was called into question for initial claims.

Seasonally adjusted “initial” unemployment declined by a notable 22,000 to 405,000 claims from last week’s revised 427,000 claims while seasonally adjusted “continued” claims increased by 15,000 resulting in an “insured” unemployment rate of 3.0%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 3.83 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.55 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.38 million people on state and federal unemployment rolls.

On The Pulse: Ceridian-UCLA Pulse of Commerce Index June 2011

The latest release of the Ceridian-UCLA Pulse of Commerce Index™ (PCI) suggests that economic activity picked up in June with the seasonally adjusted index increasing 1.01% from May and rising 2.20% above the level seen in June 2010.

The three month moving average of the PCI continued to went flat from May indicating that the June (released friday) Industrial Production data will likely show a similar trend.

Chief PCI Economist Ed Leamer likens the current economic circumstances to a wobbly "she loves me, she loves me not" situation with the national economic trends vacillating monthly between strength and weakness.

Reading Rates: MBA Application Survey – July 13 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage declined a notable 14 basis points to 4.55% since last week while the purchase application volume declined 2.6% and the refinance application volume declined 6.2% over the same period.

Given that we reached the end of the Feds QE2 intervention, it will be interesting to see how long rates trend in the next few months.

In any event, the purchase application volume remains near the lowest level seen in well over a decade while refinance activity continues to bounce around a bit.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

Tackling Distress with More Flimflam Policy

While the housing market is continues to weigh on the broader economy, the Obama administration is contemplating its next move in its ongoing attempt to mitigate the economic pain and suffering so duly deserved by the generation of speculative “homeowners” who got caught holding the bag at the top of the market.

Given the sheer enormity of the financial abyss dug by the federal government over the many decades of policy blunders and big government flimflam and in light of the escalating battle between the parties over spending cuts, revenue increases and the debt ceiling, it would seem now would be the most unlikely of times to spin up a new policy designed for saving bankrupt homedebtors from themselves.

But in typical fashion the policy junkies in Washington can’t pass up a “problem” that they think can be “solved” with another helping of federal largess despite the fact that they are simply proposing solutions the problems big-government policy created to begin with.

In the latest round of sham government dealings, the administration is pondering how the federal government can help to clear the nation’s overhang of distressed properties held primarily in the portfolios of the two government sponsored rejects Fannie Mae and Freddie Mac.

There’s speculation that the feds may implement measures designed to encourage investment in distressed properties bringing everyone from “mom and pop” to institutional investors into the fray in hopes that they will be able to mop up the distress.

Others suggest that Fannie and Freddie should convert their massive holdings of foreclosed properties into the largest rental portfolio the country has ever seen.

Imagine it now… the housing market being righted by investors picking up distressed properties using government assistance and then renting them to the very same communities that lost the homes in the first place… what could go wrong?

Who knows but considering the utter failure of past policy such as Fannie-Freddie, the homebuyer tax credit, HAMP, etc. it would seem that another blunder is in the making.

Beveridge Curve Balancing Act: May 2011

Looking deeper at today’s Job Openings and Labor Turnover report you can see that while the unemployment rate is showing notable signs of establishing a peak, the job openings rate is showing an equal but opposite troughing dynamic.

Further, the latest data indicates that private job hires are occurring at a rate of 3.5% of total employment while private job separations occurs at a rate of 3.5%.

So, currently job hires are equivalent separations thus resulting in, more or less, a stagnant job market and more evidence that the unemployment rate may stay elevated for some time.

It's important to note that today's data is very preliminary and volatile and that a more sustained and sustained spread between the rate of hires and separations would be required to make a significant dent in our current structurally weak job market.

Economic Jolt: Job Openings and Labor Turnover May 2011

Yesterday, the Bureau of Labor Statistics released their latest monthly read of job availability and labor turnover (JOLT) showing that private non-farm job “openings” increased slightly rising 0.83% since April and climbing 9.66% above the level seen in May 2010 while private non-farm job “hires” increased 1.71% from April and 5.09% above the level seen in May 2010

Job “layoffs and discharges” jumped a whopping 13.21% from April increasing 0.18% above the level seen last year while quitting activity increased 6.60% from April and 4.39% above the level seen in May 2010.

It’s important to understand that job “quits” are included as a component of the “separations” data series as “quitting” is a valid means of workers “separating” from employers but their inclusion tends to create an overall procyclical trend in what would otherwise be logically thought of as a countercyclical process (i.e. downturn leads to increase in separations not decrease).

The Fall of Greece: May 2011

Looking at the most recent OECD economic indicators, Greece makes by far the weakest showing in all the Eurozone as it continues to plod through tremendously difficult economic times.

Industrial production remains in severe contraction territory, consumer confidence has fallen off a cliff, business confidence is clearly depressed and the leading index is turning down fast dropping 0.51% since April and 6.54% below the level seen in May 2010.

For June (more timely data), consumer confidence declined a whopping 0.59% from May and dropped 1.23% below the level seen in June 2010 while business confidence declined 0.49% from May remaining 0.49% above the level seen in June 2010.

Industrial production remains epically weak plunging 1.21% between February and March 2011 (less timely data) remaining near the lowest levels seen since the late 1990s.