We were recently asked why we have become so "Real Estate obsessed."

That’s the wrong question. Given how significant Housing has been to job creation and consumer spending, the right question is "Why aren’t you more obsessed with Real Estate."

Let’s look at the most recent mortgage data as an example: This morning, the Mortgage Bankers
Association (MBA) released its Weekly Mortgage App Survey (week ending July 28) called the Market Composite Index. Its a measure of mortgage loan
application volume.

The most recent data showed a sequential decrease of 1.2% (seasonally
adjusteded)  — the lowest the index
has been since May 2002. It was the 3rd straight week of slumping overall mortgage activity, despite interest rate declines over the same timeframe.

On an unadjusted basis, the Index decreased 29.0% compared with the same
week one year earlier.

Hence, our obsession.

Mortgage apps are but one of many indicators of the ongoing housing market slowdown. New Home Sales
were down 11% in the past year, while Existing Home Sales were down 8.9%. Both Housing
starts (down 11%) and Home Builders’ Sentiment Index (down over half — off
41 points in the past year to 39) to levels also suggesting a dramatic cooling in Real Estate.

Its no surprise then that refinancings have become a larger share of mortgage activity, as home sales slide. Adjustable-rate mortgages (ARM) are also decreasing on a percentage basis.

Change in mortgage apps (year over year):

Total -29.0%
Purchase -23.2%
Refi -37.0%
Fixed-Rate -28.2%
ARM -30.7%

>

UPDATE August 2, 2006 11:15am

The following chart shows Purchasing and The Market Composite Index:
click for larger graph
Mba0802
Courtesy of Calculated Risk

>

Source:
Application Volume Declines in Latest Survey
The Mortgage Bankers Association, August 2, 2006
http://www.mbaa.org/NewsandMedia/PressCenter/43771.htm

Category: Consumer Spending, Economy, Fixed Income/Interest Rates, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

53 Responses to “Mortgage Apps drop 29% Y-Y”

  1. me says:

    So much for a “soft” landing.

  2. qw says:

    “Its no surprise then that refinancings have become a larger share of mortgage activity, as home sales slide.”

    But the data you posted shows that Refi’s have the largest percentage drop in mortgage activity. Mathematically this has to mean they make a smaller portion of mortgage activity.

    This also makes sense to me. If someone didn’t refi in the last 3 years why would they do it now at higher rates. Once the ARMs starting resetting in mass that might change but for now this data seems consistent. Which must mean that Refi’s are actually a smaller portion of the mortgage total for the time being.

  3. Alaskan Pete says:

    Calculated Risk http://calculatedrisk.blogspot.com/
    is very good on the housing issue. I visit his site regularly for my housing data fix.

  4. QW

    Home equity loans (HELOCs) that are not considered refinancings (they are pure equity withdrawals) make up are the difference

  5. Lyon says:

    As a loan officer, I can say that these numbers understate the situation. The market has a serious echo.

    At the office, I saw a tumbleweed roll by my door.

  6. j d ess says:

    hey lyon, what city/area are you in and about how long ago would you say this became obvious?

  7. Chief Tomahawk says:

    From TheHousingBubbleBlog.com:

    ‘No Return To Normal’ In San Diego

    Bob Schwartz at Realty Times has this report on San Diego. “Reviewing the recently released real estate sales data for San Diego, the lay person might conclude that the June home appreciation figures were down approximately 1 percent as compared to June 2005. The reality is the decline is probably much closer to three or five times the published figures.”

    “The appreciation figures cited are the median sales prices. The sales of these upper-end luxury estates skew the median appreciation sales data.”

    “The reported sales data does not take into consideration incentives used by not only major builders, but, in today’s market the majority of home sellers, to entice scarce buyers to purchase their properties. Just open up the Sunday real estate section of your local paper and the magnitude of these incentives becomes quite apparent.”

    “You must understand that the builders are not being altruistic. No, they just want to move standing inventory, and move it now before any further declines!”

    “It was just a little over a year ago that the majority of builders were not even co-operating with real estate agents. Now, the builder/agent cooperation has gone 180 degrees plus. Agents are being invited to catered brunches and offered co-op commissions up to 5 percent, as advertised in the July 23, 2006, Union-Tribune!”

    “A $500,000 home sale with a $25,000 interest rate buy-down/closing costs package incentive will be recorded as a $500,000 sale. Yet, the $500,000 sale, in reality was only $475,000 or 5 percent below the reported sales data! So if the $500,000 sale was just 1 percent below the June 2005 median appreciation, you can see that the ‘real’ difference was 6 percent below last year!”

    “In my opinion, this is no ‘return to normal’ or ’slight correction’ to the San Diego real estate market. By year’s end there will be no denying we will experience a double digit appreciation decline. A decline that will take years, not months, to work itself out.”

    http://thehousingbubbleblog.com/?p=1169

  8. Bynocerus says:

    In my neck of the woods, we’ve never recovered from the tech collapse of six years ago. A friend of mine bought a condo four years ago in a great location, and sold it recently for less than he purchased it for. In fact, the house my wife and I recently moved into was purchased nearly 10% BELOW TAX VALUE. It’s not that the realy estate market has collapsed here – only that the average home price hasn’t budged for six years. And it doesn’t look like the situation will change any time soon.

    And still, in downtown, they’re building high rise condos like there’s no tomorrow. Two fifty+ story towers will be built next year, in addition to seventeen other projects announced in the last twelve months.

  9. whipsaw says:

    A bit off topic, but did anyone else notice that nobody seemed to have made a fuss about the ADP Employment Report! that was released this morning? They are calling 99k new jobs which tells me it is probably more like 20k,

    Interestingly enough “The result of the ADP report was no surprise, but has “no ramifications either,” said economists at Action Economics.”. lol, what jackasses.

  10. Lyon says:

    j d ess-

    I am in Alex., VA. I do Maryland, DC, and Virginia mostly.

    Things started getting really slow once the Fed hiked to 5%. It must have been in May.

    The past few days has had some pick up w/ a couple of purchases. However, the deals aren’t solid as before.

  11. Craig H says:

    This article on SafeHaven about the choice of a hard or soft landing ties in nicely with the latest MBA data: http://www.safehaven.com/article-5643.htm

  12. FliteTime says:

    So, there’s going to be a lot of empty housing around, right? In nearby Orlando, people have been asking for a year now, “where are they going to find all the bodies to fill all those condos they’re building???”. We can only hope to get more of the retirement crowd as the great exodus occurs.

    I have a question: Is there a smart way to invest in housing right now, such as commercial or rental property? I have built some nice equity in my house, and I would like to take it out & put it to work before the value drops. I don’t want to move, so I’d be looking at a HELOC. Any advice?

  13. FliteTime says:

    Whipsaw,

    I saw Squawk Box on CNBC this morning talking briefly about the ADP report. They compared the current number to their previous number (368,000+), and had a quick laugh to how they’re trying to get more conservative. But that was it, then they started using it in their discussion as a valid number.

    Ah… entertainment!

  14. Fox says:

    Barry,

    Any idea what you will be talking about tomorrow on the 11:00 a.m. hour on Bloomberg? Also, did anyone else miss the trade of the year in SCT?

  15. ss says:

    Hopefully he’ll discuss the difference between coincident inflation indicators (like CPI, and ISM) and forward looking indicators.

    Somehow I doubt it though.

    BTW, the obsession in all things housing/mortgage has me dusting off my old file on NLY. Fade the hatred.

  16. ss says:

    Hello S&P 1281…and the confirmation of the double bottom. But yes we need volume…I agree.

    Lots ‘o nervous shorts right now.

  17. Cherry says:

    Cancelations are cancelations. Builders are being cancelled left and right. The Real Estate collapse is picking up speed. The layoffs are just around the corner on that part of the Real Estate puzzle as builders adjust for a much slower 2007(unlike the 2005 production level they have factored in for 2006).

  18. fred hooper says:

    Flitetime, I strongly suggest you post your question on http://www.TheHousingBubbleBlog.com. Be ready for a good ol’ ass whoopin. If you have to ask these questions, you aren’t suited for real estate investing at this time. BTW, why would you want to buy “before the value drops”?

  19. SS,

    I care very little about any given number — they are so noise-laden that its foolish to become overly reliant on a single datapoint — but what matters to me is the overall trend.

    CPI has been going up, as has CRB index, and now we see even the Core PCE is on the rise. Nothing suggests these are topping and/or reversing.

    So whether a given number is coincidnetal or rearwadr looking is kinda irrelevant — UNLESS it shows that a given trend (i.e, higher inflation) is on the verge of reversing . . .

  20. FliteTime says:

    Fred,

    Because ‘the value drops’ refers primarily to individual residential housing, especially condos. Some of the long-term logic believes that rising mortgages and ARMS coming due are going to squeeze out many ‘investors’ who pushed themselves to the limit while watching HGTV.

    Some of these people may even be forced to rent, and the speculation now is that rents should rise. Therefore, the value of rental property might not necessarily drop.

    I’ll happily go check out the blog. But if I’m not suited for real estate investing, then how, exactly, does one get ‘suited’ for investing? I saw that accusation about stock market investing made on this site already. Don’t worry about me not being ‘suited’ for investing, I already knew that. Just get yourself on the other side of my trade and profit off of me.

  21. ss says:

    Thanks for the response…but what if the LEADING indicatoirs are showing the opposite longer term trend as the coincident ones?

  22. fred hooper says:

    FliteTime: Education, seminars, other investors. The best in the business are guys like Jack Miller, John Schaub and Pete Fortunato. Don’t know what they’ve been up to lately but they’re still around so you can google them. Talk to property managers in your area of interest. Pick a specific “specialty” and do lots of homework.

    Sorry, but I have to yell if someone is about to jump off a cliff, hate to see anyone take a financial bath. I’m sure you can find many self-described “experts” out there that will gladly take the other side of your deal, just ask anyone who bought real estate in the last five years.

  23. Robert Cote says:

    In my considered opinion anyone suited to real estate investing has already cashed out and is sitting on the sidelines. thehousingbubbleblog.com has become a choir singing with one voice not so much because dissent is shouted down but because the notes are so clear on the page. Mortgage apps are down for the same reason as sales are down. Few can afford the current offerings. The difference is the fatal flaw in the MBSec industry. Exotic products are already too expensive for their debtors. Refinancing from a ARM resetting to 8% to a fixed 7% sound like a good idea but these people cannot afford the 7% either. Surely they also cannot qualify for the 7% nor can they sell in this market. Hence rising inventory but no declines in prices. Yet. The housing bubble is a manifestation of a credit/lending problem not the other way around. As long the problem with consumer debt continues to be ignored housing will not respond.

  24. Alaskan Pete says:

    SS: NLY is not exactly a “fade the housing hatred” play. Annally is essentially a spread trader, I wouldn’t really call them housing related at all (aside from the “mortgage” in their name).

  25. FliteTime says:

    Fred,

    Thanks! I checked out the DoomNGloom..er, HousingBubbleBlog. With a name like that, it’s hard to guess what kind of info one would find on the site. It’s all stories on how housing inventories are high, and prices are starting to fall. I think that’s pretty obvious by now.

    With even PIMpCO execs selling their houses to rent for a while, isn’t that a hint that rents might be rising as foreclosures increase? People will be forced out of their house, with nowhere to turn but to rent.

    That’s the logic behind my ‘madness.’

  26. Alaskan Pete says:

    SS: NLY is not exactly a “fade the housing hatred” play. Annally is essentially a spread trader, I wouldn’t really call them housing related at all (aside from the “mortgage” in their name).

  27. Mark says:

    Fred-

    I am in the business on the commercial development consulting side. The names you mentioned are all SFH buyer/optionor types aren’t they?

    I agree that tapping equity seems a risky play at present, but beginning to think about how to profit from the housing move down is a good idea. FliteTime is a bit “early” though.

  28. FliteTime says:

    (sigh) Yeah, that’s what ‘she’ said…

  29. bbb says:

    Credit quality question….

    When does it become an issue? I have posted before that this reminds me of Speigel’s bankruptcy. Speigel’s issued lackadaisical and cheep credit to anyone and then sold it off to the bond market. Eventually the only customers left were of poor quality. If you looked at their financial statements you could see that the rate of credit payments was slowing down while accounts receivable was growing. Eventually it broke the company. Will we see this in the mortgage companies?

  30. Rusty says:

    Flitetime, my advice if you really want to leverage your existing real estate into more real estate as the market deflates:

    Take out a HELOC for the equity in your home. Don’t tap it, just take it out, keep it as “dry powder”.

    Study the condo and small SFH sales and rental markets in your area. Pick a couple zip codes, and chart the inventory weekly within a certain asking price range (something that you’d be able to buy into and rent with positive returns). Research any new developments that will be coming online anytime soon and “dumping” more inventory on the market.

    The rest is your decision – you’ll be armed with the knowledge of which way the market is going, whether a property will be “in the black” as a rental, and will have the capital ready to pounce.

  31. FliteTime says:

    Hey Rusty,

    Thanks! I feel like such a moron! I totally forgot that I can have a HELOC and eat it too! …That is, I don’t have to withdraw immediately. Duh, I’ve already got an empty HELOC right now, and I’m waiting to hear back from the mortgage broker on a new one with the adjusted equity and a fixed rate.

    This one’s for “bbb”.

    I’ve been watching a few mortgage lenders, particularly CFC for over a year now as it’s gone sideways. CFC’s recent annual reports have recognized the looming mortgage default issue, and they have been working to build more solid loans in other markets, and to offload the high-risk stuff. They ‘claim’ to be confident that they are making good progress to secure their future, but the markets are still “uncertain”. As if we don’t hear enough of that word these days.

  32. Mark says:

    “Duh, I’ve already got an empty HELOC right now”

    Nothing so classy as sending out a general question and then flaming the responders who are trying to help you.

  33. Robert Cote says:

    “CFC’s recent annual reports have recognized the looming mortgage default issue,… ‘claim’ to be confident that they are making good progress”

    The insiders sure are making good progress reducing their exposure to risky investments:

    http://www.insidercow.com/history/company.jsp?company=CFC

    Use the sort tools and see how many shares were sold a 3x the current price. Don’t bother to look back to find the last time shares were purchased. Two years of solid selling into a stock trading sideways for two years? Plans to trim 5000 from the workforce. Make your own conclusions.

  34. Mr. Bubbles says:

    In other news:
    Treasury announced today that it will increase the frequency and aggregate size of its 30-year issuances starting next Feb. Bond traders were taken by surprise with this news. Folks, the secular bull in long bonds is over. 2007-2008 is gonna hurt.

    BTW, looks like “Wrong-way Gross” is going to be wrong yet again….

  35. FliteTime says:

    Mark,

    “Nothing so classy as sending out a general question and then flaming the responders who are trying to help you.”

    Seriously, I wasn’t flaming anyone but MYSELF! It was self-flagiluation. Sorry if you thought I was referring to you! No sarcasm, promise!!!

  36. Bynocerus says:

    I love how virtually everyone on this website, and many others for that matter, love to trash Bill Gross. I mean, honestly, he’s only the best bond fund manager in history, with a track record that matches the S&P 500 without nearly the volatility.

    Even the best can be wrong for long periods of time. Bill Miller is getting killed this year. Warren Buffet had lost his touch in the late ’90′s. Now Bill Gross is wrong way Bill. None of these guys earned their reputations for investing foolishly, and I would imagine that Mr. Gross’s less than stellar track record over the last two years is much closer to seeing a change of fortune than continuing.

  37. Bynocerus says:

    Hey Mark,

    Did you accidentally hit the unpimp ze rally button? You wonder whether or not this bear raid will hold, but if the bears take this thing down much further the bulls could get crushed again tomorrow.

    Oh, and by the way SS, since I am one of those people much more inclined to go short than long right now, you’ll be enlightened to know that I’m not getting nervous. I’m getting ready to reload. Been in cash for several weeks now (I’d dig up the post, but I’ve gotta go back to work), and this pathetic rally we’ve seen the last ten days or so looks to be on it’s last legs. Of course, if the bulls can ever get some volume my tune will change, but until then, Friday looks like an ideal short candidate right now.

  38. Mark says:

    FliteTime-

    If so, I am the FIRST to apologize.

    Byno-

    Got WAY overbought there on the 30mins and 60s, so am not too surprised. Was kinda nervous at 1282 myself as I thought one more post by “ss” telling us that the 1990s were about to repeat and I was gonna HURL.

    Still 30 minutes left to decide winner and loser.

  39. GerryL says:

    I aplogize because this is totally off topic but are there any thoughts on the breakdown of Google stock? The stock seems to be in a relentless decline. Is this a Google thing or is it telling us something about NASDAQ?

  40. ~ Nona says:

    FliteTime, FYI I read your comment exactly as you described it: as self-flagelation, not a flame.

  41. ss says:

    Byno,
    Tell your friends too.

    Many reasons to hate this market:

    -rising interest rates and inflation
    -stagflaion
    -gold going to 1000
    -dollar going down forever
    -everyone will lose their house
    -Fed is full of idiots
    -Conspiracies EVERYwhere
    -very hi pe’s
    -very low VIX
    -4 yr cycle (smirk)
    -global melting (thanks Al)
    -not enough power plants
    -not enough refineries
    -consumer dead
    -no more capex…ever
    -FNMA is a house of cards
    -bird flu
    -Iraq
    -Susan Pelosi
    -mad cow
    -hurricaines
    -hemmeroids

    I’m sure I forgot a few…but load up on the shorts!

  42. fred hooper says:

    Mark,
    “The names you mentioned are all SFH buyer/optionor types aren’t they?”. Yes, and “paper” too, especially Fortunato. Forgot to mention Jimmy Napier. I went to many of their seminars in the 80′s. They represent the gold standard for SFH and Paper investment strategies.

  43. Craig H says:

    GerryL,

    I might be the only person on the planet who hardly ever looks at GOOG, unless it’s mentioned, but now that you mention it, it’s breaking down from a big triangle.

    Does that mean it goes lower? It should, but it is the GOOG and very unpredictable. If it continues to go down I would take it as a sign that speculators are getting scared.

  44. ss says:

    Mark,

    The 90′s will NOT repeat. That was the “Era of lies”.

    Earnings were engineered…WS research was an IB scam…CEO/CFOs lived to steal from their companies, and destroy their companies and industries…option backdating…..and it was “ok” to lie.

    ….”definition of ‘is is’?” You catch my drift?

    Sarbox, and 6 years of arbitration lawyers crawling over every aspect of the Street has changed the game for the better….not perfect, but miles ahead of where we were.

    A minority of investors now see value in earnings doubling since 1998…with nothing to show for it….except overpriced houses and bonds.

    That’s what makes a market.

  45. Mark says:

    Fred-

    Is that your business now? Sorry if I am prying.

  46. Mr. Bubbles says:

    I’m not necessarily trashing Mr. Gross, just pointing out the frequent inaccuracy of PIMCOs rate bets. He seems like a nice, humble guy, but when someone gets annointed as the “Bond King”, I think the close scrutiny is justified. As to his prior track record, yes, it’s good… but “what have you done for me lately?”

  47. Mark says:

    ss-

    Oh, I don’t doubt that there’s a rally in here somewhere but my work shows that we are in for near recession conditions soon. The talk of 3% GDP the rest of the year seems overly optimistic to me.

    Declining PE multiples are the definition of a Bear Market. We have been in one since 2000, big rally notwithstanding. We are due for another leg down. At that point, I’m all in just as is Byno and the others here. Where we disagree is near term. As you say, that’s what makes a trade.

  48. DBLWYO says:

    RE GOOG:

    Great company with sound/new technology (search). However…..if you look at the charts a) they’ve had their run, b) flatted out into decline because c) they’ve reached a ‘fair’ valuation of their growth and earnings. Also look at PE compressons.

    If you’re interested it’s worth your while to check out Cringeley’s columns on them but the short take is that they’ve a) started putting their own interests ahead of customer value which will damage their franchise and b) been experimenting with a lot of other things that aren’t really catching on which is an early indicator of innovation exhaustion so c) bottomline it’ll generate lots of money and be highly profitable and effective for a long time but won’t see any bumps in revenue or profit. Hence the price now is as best as you’ll see.

    In all these senses that’s not a general technology indicator but is represents the ‘technology maturity’ and ‘requirements saturation’ that have already overtaken tech years ago and is just now being reflected in stock prices.

  49. CDizzle says:

    Great comments. Funny DBLWYO I was just looking at GOOG charts.

    Question for the crowd: If housing plays out as what I’ll say the “vocal minority” (HARD landing), are companies like CountryWide (CFC) good to short?

    I’ve been watching it. The stock has not gone up over the last 2-3 years, per se. I was shocked that it hadn’t doubled in that timeframe. Anyone have an opinion on these “step right up” consumer mortgage companies might fare in a downturn?

  50. fred hooper says:

    Mark, nope, sold out in the mid 90′s to devote full time to a high-tech business that I still own and operate. Thankfully a success or I wouldn’t be playing here. Although I missed the last 10 years of real estate “fun and easy profits”, I don’t miss the business.

  51. steve says:

    30% y/y is a big drop, but I always heard that about 30% of demand was speculative, “flippers” for investment purposes, rather than people buying homes to live in. Is there evidence that the market for actual home buyers has been hurt significantly? Are we just resuming a more normal housing market?

  52. rob says:

    defending their business model with billions in spending. the next EXDS? goog will be overwhelmed by infra structure costs.

  53. Fed Watch: Inflation Concerns Set to Trump the Slowdown?

    Tim Duy with a Fed Watch in anticipation of next week’s meeting: Inflation Concerns set to Trump the Slowdown?, by Tim Duy: The intensity of disgust for the 2Q06 GDP report – documented excessively at macroblog – caught me somewhat