Even after adjusting for the holidays, Mortgage Refinance Activity plunged a steep 22%.
The Mortgage Bankers Association returned from its holiday hiatus today, issuing its first update on mortgage applications’ activity since that for the week ended December 16. The results thus include data for the last two weeks and an adjustment to account for the Christmas holiday.
The Market Composite Index, a measure of application volume, for the week ended December 30 was down 12 percent on a seasonally adjusted basis compared to the December 9 summary. Before the adjustment, the drop in application activity was 48 percent.
The Refinance Index decreased 22 percent from two weeks earlier and the seasonally adjusted Purchase Index declined by 2 percent. The unadjusted Purchase Index was 41 percent lower than the two-week old reading and lost 1 percent when compared to the same week in 2015.
Purchase Applications vs. 30-Year Rates
Its difficult to say at what point consumers thrown in the towel on new home purchases as a number of factors are in play.
Refinance Window Closing Fast
Refis show a clear pattern. Only those whose interest rate is above the red dotted line is likely to refi. Given closing costs, it’s only profitable to refi when rates are substantially above the red line.
Bear in mind this data is for a slow holiday period. Nonetheless, refi applications behave as expected.
Three rate hikes in 2017? I don’t think so.
Mike “Mish” Shedlock
I find it strange that as soon as Trump gets elected, interest rates start going up. I would guess the FED is hoping Trump only serves one term. I can tell you that federal employees overwhelmingly wanted Hillary to win. At least in the DC area. They fear with Trump they may have to compete for a private sector job. Something few of them are cut out for.
The average federal employee makes more than the average tax payer. Putting the bureaucrats onto welfare (where they belong, they have no useful skills) means paying the same losers welfare wages ($20-25K?) instead of paying them an average of $87K per year ($20K more than the average taxpayer).
It is much cheaper to have these useless people on welfare than have them f’ing up the economy.
30 yr Interest rates had bottomed in July 2016, which was several months BEFORE the election. Trump had nothing to do with yields.
A large source of revenue for lenders (not to mention other folks who comprise the closing costs) is refinancing.
How many loan officers will get the pink slip?
I don’t understand why Mish (supposedly an asset manager for Sitka?) is pushing for endless zero rates and a very slow agonizing Japanese style economic death.
Destroying the savings pool — which is the clear and obvious outcome of ZIRP — isn’t exactly recommended if Mish is of the “Austrian economic school”
The Fed will raise rates because they have to, not because they want to. The system is failing — just in case Brexit, Trump, Italy, France and Germany weren’t really really big clues.
I am not pushing for anything except market rates. In fact, it appears you have not read a damn thing I have written about this on many occasions. To repeat what I have said at least a dozen times, just not in that article “I do not know where interest rates should be and neither does the Fed”.
I gave my belief the Fed will not hike 3 times. How the hell can you perceive that as an endorsement?
For decades, Fed Funds (and 3m T-bills, and GC repo rates) have paid slightly more than CPI (about 5bp more on average).
CPI has been running about 2% for years — so a return to “normal market rates” as you say would suggest at least ***SIX*** more whimpy sized 25bp increases.
Do you support market rates (six more hikes)? or do you support Yellen’s fantasy world?
“For decades”, “rates” have had little if nothing to do with any kind of “market” rates. The idea of a central planned “fed funds” rate, is in and of itself anathema to a market. As is the idea of an arbitrary, centrally endorsed “CPI.”
Absent all the distortions and implied bailout guarantees, it’s really a stretch to believe anyone would lend at only a few basis points above negative 2%, or whatever happens to be the almost always deflationary price level decline necessitated by technology and efficiency improvements.
Borrowing money in a free market economy, will always be expensive. Since efficiency improvements, which would be higher in a free economy than in ours and the Soviet Union’s, give those with something to lend, the option of a comfortable, risk free real return, by simply sitting on it.
Which means: In a free market economy, lending, “investing” (as hawked today) and the rest of the largely pointless make work that make up today’s “financial system” racket, never grows to be very big. Allowing purchasing power to be enjoyed by those who do, or did, something useful and productive. Rather than those who, as the situation is today, simply live large off of getting handed debasement generated loot taken from those few, and getting fewer, who still bother attempting to do productive stuff.
You are an idiot.
The Fed needs to raise rates because we are nearing the end of this economic/business cycle and the next recession will soon be upon us. They need to raise the Fed Funds target rate in order to be able to cut it when the recession hits – without having to go into NEGATIVE territory. Running a $600 BILLION+ annual trade deficit and attempting to finance it at NEGATIVE interest rates is a prescription for global financial collapse and quite possibly WAR.
“Three rate hikes in 2017? I don’t think so.”
I disagree. With Libor over 1%, three rate hikes of 25 basis points each is baked in the cake.
The Fed is now following the market as it needs to rollover a huge amount of existing Federal debt. It is the buyers of that debt that now are in control and not the Fed.
yep… And the US government is already defaulting on some promises. And at the moment no one has even a halfway plausible plan to balance spending in the next 20 years — if ever. Even the federal government’s own accountants are in doubt.
Only a clueless academic would consider US government promises “risk free” now.
That doesn’t mean complete default is inevitable — but it does mean that continuing the spend trillions under ZIRP pipe dream is going to end one way or the other.
Saying there is too much debt in the system, and debtors can’t afford rate increases — that is just Mish admitting (in a very backwards manner) that debtors’ ability to pay is in doubt.
Apparently, the FED minutes show the FED is concerned they may have to raise rates faster. Rather odd, considering they had so much difficulty raising the rate even once in a full calendar year.
As I have said many times — I don’t think a clueless “keynesian” like Bernanke/Yellen is raising rates because they want to. They are being forced to raise rates.
They must refinance their spending binge in order to pass the disaster on to the next group. Think of it as trying to cram 1,000 skeletons into a closet that can only hold a few skeletons.
Yellen is just praying all the skeletons don’t fall out until after she leaves next year (her term is up January 2018, and her credibility is already gone)
The thing that worries me is that there doesn’t seem to be a Paul Volcker waiting in the shadows — and it would take someone of his stature to save the Fed from becoming a utility that just implements something non-discretionary (the Taylor rule or something like it). The clowns that have been “exercising discretion” are not up to the task. Volcker was the exception that proves the clown rule.
If Volcker hadn’t come along, I suspect the Fed would have been dismantled many years ago.
The Evil Dr. Trump is forcing them to raise rates. When Barack The Benevolent was in charge the Fed was gleefully independent.
Trump isn’t in office yet — still 2-3 long weeks before inauguration.
Obama is the guy practicing scorched earth policies.
The Fed is being forced to raise rates because of their earlier policy errors — Obama’s debt binge pushed the timing forward a little, but the Fed shot itself in the foot long ago
It’s a shame people will find it harder to throw away their home equity.
The real shame, is that we’re stuck in a Dystopia so rigged, that there is supposedly “equity” in a product which costs $50K to replicate, yet has $500K worth of loans against it.
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The reason that interest rates fell over thirty year particularly since the mid 1990s has to do with globalisation. The surpluses generated far exceeded the level of investment as I showed on my website theplanningmotive.com In 2004 the BEA was already drawing attention to this disparity. This followed earlier examination by academics of the Japanese phenomena in the 1980s when its industry dominated world markets piling up uninvested surpluses (hence their housing boom at the time). Since 2014 however, with the fall in world profitability, the mass of this surplus has fallen and with it the pressure on interest rates, hence the uptick before Trumps election. Had surpluses grown as they had up to 2014, the surplus in the US would be $800bn higher today. However, Trump has acted as a catalyst accelerating interest rates due to his projected budget deficits. The most recent Congressional report on the budget shows the US had to budget $10billion extra in interest payments this November compared to last November.