Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.
Today’s Focus: MBA Mortgage Applications
The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended December 19th.
The Composite Index rose 0.9% sequentially with Refi activity up +1.07% WoW and Purchase demand rising 1.3% WoW …(yes, via SA translation, the combination of +1.07% and +1.3% gets you less than 1% on the composite)
Three quick highlights:
Hurry up and wait: Given the regulatory change for Fannie Mae, which reduced minimum down payment requirements to 3% from 5%, took effect on December 13th we were interested to see this week’s purchase apps data as it captures the first week of potential impact.
In short, purchase demand was higher by 1.3% sequentially, but given peri-holiday seasonality in combination with the typical weekly volatility in the series, it’s hard to (convictedly) discern the impact of any single factor in isolation. Its more likely that any positive impact – which we expect to be modest/moderate – will manifest as a support to the underlying trend in 1H15 rather than a discrete, step function increase in reported demand trends.
Rate of Change: Our reversal from bear (in 2014) to bull (for 2015) on housing is more of a rate of change and balance of risk call than it is an expectation for meteoric, industry ‘escape-velocity’ in the immediate/intermediate term.
Summarily, with 2nd derivative HPI trends stabilizing, easy comps, marginal expansion of the credit box and supportive macro we expect housings transition from ‘bad’ to ‘less bad’ will be a positive for the related equity complex.
We are seeing that play out on the purchase demand side (1st & 2nd charts below) with the year-over-year change improving to just -0.5%; flirting with its first positive growth number in a year and facing progressively easier comps through 1Q15.
3-Handle: With rates on the 30Y FRM contract down another -4bps week-over-week to 4.02%, we are also flirting with a breach of 3% to the downside for the first time since May of last year. To the extent that expectations for monetary policy normalization continue to drive a flattening in the yield curve and global disinflation and growth deceleration continue to anchor the long-end (Japan & German 10Y both <60bps), ceteris paribus, domestic housing demand/affordability stands to benefit.
Joshua Steiner, CFA
Christian B. Drake