Fourth Week of Consecutive Decline in Mortgage Demand

Takeaway: Despite falling rates and solid labor market indicators, the demand to buy homes keeps dropping.

Fourth Week of Consecutive Decline in Mortgage Demand - 18x74ymmndzzhjpg 

MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended May 30. Mortgage purchase application volume slid further this week dropping another -3.6% week-over-week. This brings the streak of negative sequential prints to four in a row on the purchase side. And while 2Q14 is tracking higher vs 1Q14 by 2.9%, it remains down year-over-year by just over -17%.


Activity cooled off on the refinance side as well. Despite falling rates, refinance application volume has been negative in both of the last two weeks, falling -2.9% this week and -1.4% in the prior week.  


We're more interested in the mortgage purchase volume data as it's the better leading indicator of the direction of housing's momentum, while the refinance data is largely a reflection of rates on a coincident basis.


As the chart below shows, demand recently peaked in 2Q13 and has fallen significantly since. Admittedly, 2Q14 is tracking up vs 1Q14 by 2.9%, but relative to the -19% decline since mid-2013 (and the positive shift in weather) this bounce remains quite minor.


Fourth Week of Consecutive Decline in Mortgage Demand - Purchase   Refi YoY


About MBA Mortgage Applications

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 


The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.


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Editor's Note: This is a brief excerpt of a research note that was originally sent to subscribers on June 4, 2014 at 8:33 a.m. EST by by Josh Steiner and Christian Drake from Hedgeye's Financials and Macro teams. Follow Josh & Christian on Twitter @HedgeyeFIG and @HedgeyeUSA.


Poll of the Day: Is the VIX Heading Higher or Lower?


In today’s Morning Newsletter, Hedgeye Director of Research Daryl Jones questioned the lack of current market fear writing:


"…The area of foreign policy may be one key area in which the amount of concern or fear is lower than reality warrants.  From the Taliban in Pakistan, to the potential for an Iranian nuclear arsenal, to the ongoing conflict in the Ukraine, foreign policy risks remain.  Certainly these global hot spots create buying opportunities more often than global calamity, but at a VIX of sub 12, not a lot of calamity is priced in.”


What do you think?


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Retail Callouts (6/4): NKE, WMT, TGT, AMZN

Takeaway: NKE files patent for form fitting shoe. WMT beats TGT to market on chip & pin. New Indian PM could be lifting FDI restraints




  • FIVE - Earnings Call: 4:30pm



  • PVH - Earnings Call: 9:00am
  • VNCE - Earnings Call: 9:00am




NKE - NKE Files Patent for Form Fitting Shoe



  • "A footwear customization kit is disclosed. The kit comprises a container including an article of footwear, a stand, a steaming bag and a set of instructions. The article of footwear includes a customizable portion that can be deformed when heated. The stand and the steaming bag can be used to heat the article of footwear in a steam environment. The stand includes a base portion and a footwear engaging portion. The stand can also include a detachable portion configured to engage the base portion in one position and the footwear engaging portion in another position."


Retail Callouts (6/4): NKE, WMT, TGT, AMZN - chart1 6 4


Takeaway: NKE leads the footwear category in innovation and the margin isn't even close. We're not as excited for a form fitting shoe as we are for the in-store FlyKnit customizer, but it's another arrow in NKE's quiver that differentiates it from its competition. It's much easier to take price when its associated with technical innovation. Even if the wholesale partners (FL, FINL, DKS, etc…) don't initially carry this technology, it is something that Nike can wave in front of them as an incentive to strengthen its leverage over these retailers.


WMT - Sam's Club to Issue MasterCard-Branded Card With Security Chip



  • "Sam's Club...said it would unveil a new credit card that features chip-enabled security technology."
  • "The new card—co-branded with MasterCard Inc. and issued by GE Capital Retail Bank—represents the first active adoption of the technology by a mass retailer, Sam's Club said."
  • "The new card, along with a new rewards program linked to it, will become available June 23, Sam's Club said."


Takeaway: Talk about a punch in the gut for TGT. Target announced its intent to roll out chip and pin enabled cards this year, but gets beat to market by WMT. This is as much about PR as it is about security. TGT needs to prove that it's going above and beyond in the security department to win back its customers, but is unable to move quick enough in order to win the PR battle.


AMZN, WMT - Exclusive: India likely to ease restrictions for foreign online retailers next month



  • "India could allow global online retailers such as Inc to sell their own products as early as next month, removing restrictions that could boost competition in one of the world's biggest, and most price-sensitive, retail markets."
  • "The decision, which is likely to be announced in the budget, is one of the first tangible signs of economic reform by the business-friendly government of Prime Minister Narendra Modi, who was sworn in 10 days ago."
  • "The move is also likely to allow the government to circumvent political opposition to opening up India's $500 billion retail sector to global retail giants such as Wal-Mart Stores Inc."


Takeaway: New PM and the first signs that some of the FDI restraints may be lifted.




DECK - Teva Strikes Licensing Deal With BBC International



  • "Deckers Outdoor Corp.’s Teva brand has inked a licensing deal with footwear firm BBC International to distribute the label’s children’swholesale business in the U.S."
  • "The partnership will commence this month, with the transition expected to impact the Teva’s spring ’15 product offering."


BOSS - Mark Brashear Exits Hugo Boss



  • "Hugo Boss said Tuesday that Mark Brashear, chairman and chief executive officer of the brand in the Americas, has left the company. Claus-Dietrich Lahrs, ceo of the Metzingen, Germany-based company, will oversee the Americas until a successor is named."
  • "Brashear joined Hugo Boss to oversee the Americas in 2009. Before that, he was with Nordstrom for nearly 23 years, from 1985 to 2008, where he was executive vice president. From 2001 to 2007, he was chief executive officer of Façonnable, which was owned by Nordstrom during those years. He could not be reached for comment Tuesday."

Got 2014 Sector Variance?

Client Talking Points

U.S. Stocks

The latest II US Equity Bull/Bear Sentiment Survey pins Bulls at all-time highs vs. Bears. Bulls rip to fresh cycle highs of 62.2% as Bears plummet to 17.4% - +4480bps to the Bull side. That’s right – slow-growth Style Factors (at the US Equity Sector level) continue to tell the tale of the tape in 2014. Slow-growth Utilities (XLU) are up +13% vs. #ConsumerSlowing (XLY) down -1.6% YTD. Got 2014 Sector Variance?


US Housing Demand continues to crash as bond yields fall. MBA weekly US mortgage purchase applications dropped another -3.6% last week after falling -1.1% in the week prior. We call that #HousingSlowdown. Reminder: yesterday's Core Logic US Home Price read-through for May … it was the worst of 2014. In related news, the 10-year bounce to lower-highs of 2.58% registers as a buy-more-bonds signal.


Oil +0.7% leads the #InflationAccelerating charge as socialists beg for moar printing. OIL registered another BUY signal in #RealTimeAlerts yesterday. WTI Crude upside to $104.88. In related news, the OECD has now moved toward the Hedgeye #InflationAccelerating theme, albeit on 6 month delay.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.  

Three for the Road


Now that the UK and Europe has deflated the inflation tax w/ stronger currencies, macro morons call it "deflation" risk @KeithMcCullough


"A journey of a thousand miles must begin with a single step." - Lao-Tsu


California residents have voted for a plan to spend $600 million to build houses for homeless veterans in the state with the highest number of ex-servicemen without a roof in the United States. (Reuters)

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