Prices, especially in Bubbles are done at the margin, and the same is true of hyperleveraged economies dependent on debt creation, and using house as ATM. So to me this is like the temperature going up, and cracking up an icefield, that's been growing like Audrey in the Little Shop of Horrors. It's a sea change.
There are several immediate things to watch for in gauging Bubble leaking fallout. First is some initial recognition that the mortgage and housing business no longer has a profitable license to print.
1. The spreads are getting narrower,
2/10 is 92 this AM
gcm.com
2. Resell profits to the secondary market are slipping, which is really their bread and butter.
idorfman.com
3. Loan volumes are stagnant but here we are this morning with another "recovery" and bullish loan news. (*) Does this mean the one year ARM types are extending their duration to 3/1, 5/1, 7/1? Doesn't save them any money, but lowers exposure. So this activity could keep the mortgage purveyors in the game some. Does 5.25% on a 5/1 hybrid keep the frenzy going? Key question. And how long does 5.25% hold?
4. They have bloated employment structures, 468,800, nearly double that of four years ago.
5. Bloated stock prices too.
My guess is that this industry is praying for salvation, some Hail Mary big Wizard engineered downtick in rates, or spread widening. As Ramsey Su suggested it's natural to be suspicious of that, although it seems odd given all the talk from Fedheads. But if they once again change course and vie towards cheaper money, since when have they ever been concerned about encouraging more moral hazard? At minimum the 1CMT and 1 LIBOR has to stop rising. Then I think they are hoping the homebuyers and speculators show up to add third and fourth properties (read "Dave's" final remark:
Message 20961744 )
like some kind of coin collection after Super Bowl Sunday, when that kind of activity seasonally lifts. If the new housing developments are inactive, then the layoffs and cutbacks will kick in fast IMO. It would be nice to get reports from folks (realtors, mortgage employees without an agenda?)here on that. I may go check a few out myself. If there is anybody still left to buy I guess they can still use the 3/1 and 5/1s to entice people, we will see.
(*)
WASHINGTON, D.C. (January 19, 2005)— The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending January 14. The Market Composite Index - a measure of mortgage loan application volume - was 682.9, an increase of 16.2 percent on a seasonally adjusted basis from 587.8 one week earlier. On an unadjusted basis, the Index increased 19.4 percent compared with last week but was down 27.4 percent compared with the same week one year earlier.
The MBA seasonally adjusted Purchase Index increased by 14.0 percent to 448.1 from 393.1 the previous week. The seasonally adjusted Refinance Index increased by 19.1 percent to 2048.6 from 1720.5 one week earlier.
Other seasonally adjusted index activity included the Conventional Index, which increased 15.8 percent to 1014.9 from 876.8 the previous week. The Government Index increased 22.2 percent to 128.9 from 105.5 the previous week.
The refinance share of mortgage activity decreased to 48.9 percent of total applications from 49.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 32.8 percent from 32.7 percent of total applications.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.64 percent from 5.70 percent one week earlier, with points decreasing to 1.23 from 1.32 the previous week (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.14 percent from 5.17 percent one week earlier, with points decreasing to 1.20 from 1.31 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year ARMs decreased to 4.13 percent from 4.16 percent one week earlier, with points increasing to 1.00 from 0.97 (including the origination fee) for 80 percent LTV loans. |
