Purchase Apps | Rates Ebb, Volume Flows (kinda)

Takeaway: Mortgage activity was uneventful this past week, but Housing is quietly setting the stage for a major bull market run.

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.


Purchase Apps | Rates Ebb, Volume Flows (kinda) - Compendium 090915


Purchase Apps: Soldiering into September | Purchase demand declined -0.9% WoW but held near the best levels QTD at 205 on the index.  On a QoQ basis, 3Q is currently tracking -1.0% sequentially while, on a year-over-year basis, activity accelerated to +27% YoY against easing comps. 


In short, purchase demand has seen a modest upswing to start September, remains “good” on an absolute basis and reported year-over-year growth should remain solid against easy 2H comps.  However, as we’ve highlighted, the large-scale positive reversal in 1H15 which was characterized by remarkable YoY and QoQ growth is now rearview and organic strength will need to take the hand-off from easy compares to drive ongoing improvement.  For now, Housing’s transit from Great --> Good remains a relative winner against the transit from Good --> Bad across the preponderance of global macro.    



Refi & Rates: Rates ↓, Volatility & Affordability ↑ |  Refinance activity dropped -10% in the latest week after ramping +16.8% the prior week ahead of back-to-school  and alongside the expedited retreat in treasury yields.  Rates on the 30Y FRM contract, meanwhile, rose +2bps WoW to 4.10% but remain well off the YTD highs recorded in late July.  At current interest rates, affordability remains +4.4% better than the 2014 average and sits as a modest tailwind for HPI.   



Big Picture | The big picture is that a potent factor cocktail alignment is occurring for housing on the long side as the confluence of seasonally strong 4Q/1Q trends (aka "the hope trade") converge with election year tailwinds (2016) (See our Note from earlier this morning: Election Cycle Analysis ==> Will Housing Trump the Market?. Meanwhile, HPI is accelerating (July +6.9% Y/Y vs June +5.6% Y/Y), and we've shown that HPI is a strong corollary to housing equity price performance. We'll delve into these topics and more in greater detail in our upcoming 4Q15 Housing Quarterly Themes call. 




Purchase Apps | Rates Ebb, Volume Flows (kinda) - Purchase index   YoY Qtrly


Purchase Apps | Rates Ebb, Volume Flows (kinda) - Purchase YoY


Purchase Apps | Rates Ebb, Volume Flows (kinda) - Purchase 2014v15v16


Purchase Apps | Rates Ebb, Volume Flows (kinda) - Purchase   Refi YoY


Purchase Apps | Rates Ebb, Volume Flows (kinda) - Purchase LT


Purchase Apps | Rates Ebb, Volume Flows (kinda) - 30Y FRM




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


CHART OF THE DAY: Rattled? How About Short-Duration Treasuries?

Editor's Note: The following chart and excerpt are from this morning's Early Look which was written by Hedgeye Director of Research Daryl Jones. Click here if you would like to learn more about how you can subscribe.


...Speaking of "rattled," the short-duration Treasury market is completely rattled as it relates to digesting the Fed's intentions.  In the Chart of the Day below, we show a chart of the 2-year Treasury yield, which emphasizes the inability of the 2-year to break through the 0.74% yield level.  Certainly, it has made attempts to breakout, but alas, it continues to fail as the likelihood of the Fed increasing rates gets pushed out further and further.


CHART OF THE DAY: Rattled? How About Short-Duration Treasuries? - z chart of day 09.09.15 chart


“The breath of an aristocrat is the death rattle of freedom.”

-Goerg Buchner


While the 2016 Presidential election is still over a year away, it's fair to say the Republican and Democratic establishments are rattled right now. Completely rattled.   The candidates responsible for the rattling are none other than Donald Trump and Senator Bernie Sanders.  While we have misgivings about both candidates, frankly, shaking up the disfunctional two party system with its embedded interests is a very good thing for America.


On the left, we have Vermont's self-avowed socialist Senator Bernie Sanders. Technically speaking, he is an independent who caucuses with Democrats.  He is also probably the poorest candidate in the race.  In fact, last year Hillary Clinton made more than the Sanders’ entire household net worth.


So, how is Sanders actually doing?  Overall, he has gained massive ground on Hillary, but according to poll aggregates he still trails her by almost 28 points for the Democratic nomination.   Interestingly, though, in New Hampshire primary polls Sanders is up more than 9 points on Hillary.  So, while he remains a true long shot, Sanders is narrowing the gap every day.


On the right, of course, is the omni-present Donald Trump.  At times, Trump has identified himself as a Democrat, but recently pledged that he would support the Republican nominee. For all practical purposes he represents the "Party of Trump."  Or, as David Brooks accurately wrote in the New York Times this morning, “He is a lone individual whose main cause and argument is Himself.”


Regardless of his intentions, so far The Donald is polling very well in the race for the Republican nomination.   This is highlighted in the attached graphic.  Since early July he has been the clear leader and is now more than 14 points ahead of second place Ben Carson.   Trump’s poll chart looks eerily similar to a chart of the Chinese stock market from earlier this year.


 Rattled - z middle chart


If the history of recent elections is any guide, it's unlikely that Trump or Sanders will prevail.  But the current state of affairs is certainly a valuable lesson for both parties. The electorate is signaling they are tired of Washington insiders and petty partisan politics.   As a result, non-traditional candidates with limited party alignment are receiving serious consideration (even those with combovers!)


French historian Alexis de Tocqueville summed up the challenges with the two party system more than 180 years ago when he wrote:


“There are many men of principle in both parties in America, but there is no party of principle.”




Back to the Global Macro Grind...


On a related market and political note, our housing research team is currently doing work analyzing housing stock returns in and around an election year.  They’ve found that the general cycle, not surprisingly, goes something like this:

  • Year 4 (Election year) -> candidates promise the world / stocks price in great expectations
  • Year 1 (New President) -> honeymoon / talk of big ideas / do no harm
  • Year 2 -> Unleash hell
  • Year 3 -> Comping the comp
  • Rinse and repeat

Our team looked at housing stock returns going back to 1991. Their overwhelming conclusion was that election years are the most favorable for housing stock returns. In fact, the median return for housing stocks in an election year was an incredible 30% (with the average just a hair behind at 29%.)  If you’d like to view their research in its entirety or discuss the results of the analysis, please ping our sales team at .


Supporting this idea that housing stocks have the potential to outperform in the coming year is the reality that the Fed is likely to push out raising rates longer than most expect.   We penned a piece for Fortune recently highlighting five key reasons why the Fed might push the date for interest rate increases.  Not the least of which is inflation expectations, which have become downright deflationary.


Speaking of "rattled," the short-duration Treasury market is completely rattled as it relates to digesting the Fed's intentions.  In the Chart of the Day below, we show a chart of the 2-year Treasury yield, which emphasizes the inability of the 2-year to break through the 0.74% yield level.  Certainly, it has made attempts to breakout, but alas, it continues to fail as the likelihood of the Fed increasing rates gets pushed out further and further.


As you may have heard, The World Bank has offically joined the chorus of global prognosticators urging the Fed to delay a hike.  According to the World Bank’s Chief Economist:


“I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence. It is the compounding effect of the last two weeks of bad news with that China devaluation. The world economy is looking so troubled that if the US goes in for a very quick move in the middle of this I feel it is going to affect countries quite badly.”


Less than a week ago, the IMF also urged the Fed to delay any rate hike.  So to the extent the Fed does decide to raise rates during its Sept. 16th and Sept 17th policy meetings, it would do so against the advice of both the IMF and World Bank . . . the two institutions that were created at Bretton Woods to manage global financial stability.


Bottom line? If Chair Yellen and her Fed colleagues ultimately decide to raise rates in mid-September, we will all be rattled.  As will equity markets across the globe.


Our immediate-term Global Macro Risk Ranges (with our intermediate-term TREND call in brackets) are now:


UST 10yr Yield 2.10-2.24% (bearish)

RUT 1120-1176 (bearish)

VIX 21.60-32.63 (bullish)
Oil (WTI) 39.66-49.45 (bearish)

Gold 1115-1145 (bullish)


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


 Rattled - z chart of day 09.09.15 chart

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*UPDATED* September 9, 2015

Please note that the Daily Trading Ranges sent out earlier this morning were not up-to-date. Today's updated ranges are below. 

*UPDATED* September 9, 2015 - Screen Shot 2015 09 09 at 8.23.46 AM

The Macro Show Replay | September 9, 2015


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