Tougher Mortgage Standards Hurting Homebuilding?

Rates open this week in better territory as Friday’s bond rally extends into today. The rally was helped in part by weaker U.S. economic data, summarized below. And here’s a midday trading snapshot in the mortgage bonds (aka MBS) that rates are tied to.

Housing Market Index (April 2013)

– July’s National Association of Homebuilders Housing Market Index was 42. 

– Down from last month’s reading of 44, and a steady down trend for 2013 after ending 2012 close to the 50+ level that starts to be considered a healthy market (50 is dividing line between positive and negative sentiment)

– This is a survey index. Rick Judson, the group’s chairman said, “Many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values.”

– The restrictive mortgage lending standards are something we deal with daily.  The difficulties in obtaining credit will get worse if increased bank capital standards (Basel III and some of the increased capital standards going through Congress) take effect.  Increased bank capital has the effect of reducing money supply.

Full report is here.

– Below is table from 1985 to PRESENT

Screen Shot 2013-04-15 at 9.46.56 AM

Empire State Manufacturing Survey (April 2013)

– General Business Conditions Index 3.05

– Previous was 9.4

– Despite decline, it’s been positive for 3 straight months 

– Zero is dividing line between expansion and contraction

Full report here and chart below

Screen Shot 2013-04-15 at 9.56.42 AM

Commodities

Precious metal prices are plunging.  At 8:00 PDT gold is down 7.5% and silver is down 10.73%.  I don’t believe this has a single cause but last week’s Fed minutes indication of increase support to end QE is important.  Commodity and equity prices have been pumped up by QE.

$XHB