MBA Mortgage Applications (week ended 11/2/2012)
– Composite Index – Week/Week -5.0 %
– Purchase Index – Week/Week -5.0 %
– Refinance Index – Week/Week -5.0 %
The lesson here is that it is difficult to fill out a mortgage application when the wind is blowing at 60 mph and you have no electricity.
With yields falling sharply now that the election is over we should see refinancing activity pick up. When bond prices rise on a buying rally, yields (or rates) drop. We had a big rally Monday in mortgage bonds (MBS), then a equally big selloff yesterday, then a massive post-election MBS rally today. Below is a table* showing substantial gains in the key coupons lenders use to price consumer mortgage rates (right now lenders mainly focus on the 3% and 3.5% coupons as rate pricing benchmarks).
The National Association of Realtors reports that the median sales price in the 3rd quarter was up in 120 of 149 metropolitan areas measured. Yesterday, CoreLogic reported that, nationally prices were up 5% year/year.
Prices are rising because supply is constrained. As fewer homes are underwater, owners may decide to put them on the market. What we see is a case of lack of supply elasticity. (Supply elsasticity occurs when supply rises to meet increasing prices.) Normally, higher prices would bring more homes to matket but underwater home are unlikely to come to market. With supply being relatively inelastic, prices rise.
Since GDP and jobs remain extremely flat and mortgage qualifying remains tough there is little chance of a demand boom.
*used with permission from MortgageNewsDaily’s MBS Live realtime bond pricing service. This pricing was as of 11:00 am pacific.