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
July Closes Strong: A mini grand finale for July Purchase demand with applications rising +3.3% WoW to close out the month. On a year-over-year basis growth accelerated to +22.9% against still easy comps, marking the fastest rate of growth YTD. On a quarter-over-quarter basis, growth in 3Q is currently tracking down -0.7%.
A Tale of Two RoC's: So, the rate-of-change setup is showing an interesting, marginal shift. Both sequential and year-over-year acceleration in purchase activity characterized the first half of the year, but now, with the data cresting on an absolute basis, sequential growth in 3Q is tracking negative while year-over-year growth is accelerating against trough 4Q comps.
Notably, growth comps for Purchase Applications (which are used as a ST direction barometer for Pending Home Sales) are showing convergence to zero about 3 months behind PHS with comps in pending home sales steepening in 3Q (relative to 4Q for Purchase Apps). In thinking about the comps dynamic we’d put greater emphasis on the setup for PHS.
Swing-Factor: Rates – whose capricious oscillations between breakout and breakdown remain the largest short-term swing factor to price performance and lead marginal (upside & downside) risk to fundamentals - retreated another -4 bps WoW to 4.13%.
Rates are now down -13 bps off the highs of late June and while mortgage rates in 3Q remain elevated relative to 2Q15 and 1H15, financing costs remain a ~4% tailwind to affordability relative to 2014 at current levels (see Affordability table below)
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.
Joshua Steiner, CFA
Christian B. Drake