Mortgage Applications

by Larry Levin

Is the "Homebuyer Tax Credit" working? If so, wouldn't mortgage applications be steadily rising? Of course the answer is no, and mortgage applications are not rising - they are falling and I have written about both the "Homebuyer Giveaway" and the mortgage applications in the past. With the recent MBA data I must bring it up again.

Last Thursday we got the latest on the subject via the MBA Purchase Applications report. This report was supposed to have shown a positive reading - an increase in home sales - but it was quite negative indeed at -2.3%. Bloomberg said this: "The Mortgage Bankers Association's purchase index fell 2.3 percent in the March 12 week...The refinance index also fell, down 1.7 percent. The declines weren't due to high mortgage rates which fell sharply in the week with 30-year loans down 10 basis points to an average 4.91 percent. The MBA has been warning that low rates are no longer boosting refinancing demand" (emphasis mine).

Addison Wiggin's piece in the Daily Reckoning takes up the issue here:

http://dailyreckoning.com/the-glut-in-the-mortgage-market-self-reinforced-and-going-down/

Adding to the housing glut: An increase in the number of foreclosed homes that banks are looking to unload. That number was actually falling much of last year, as many homeowners were suspended in limbo, waiting to find out whether they qualified for permanent modifications under the HAMP program.

Now that HAMP has proven itself a miserable failure, some of those homes are coming to market. Thus, Barclays estimates the number of foreclosed homes held by banks and mortgage investors rose 4.6% between December and January.

Foreclosures now make up one out of every five homes listed for sale across the fruited plain.

And don't forget the "strategic default" phenomenon. Professor Luigi Zingales at the University of Chicago estimates 35% of home mortgage defaults in December were by folks who could keep up their payments, but decided it just wasn't worth their while on an underwater property. Nine months earlier, it was only 23%.

And as more people do it, the stigma once attached to it falls away. "The risk that the number of people doing this might explode is significant," says the professor.

At this point, the housing glut appears to be self-reinforcing. The Census Bureau reports at least 6.6 million households had at least three generations under one roof in 2009. That was a 30% increase over 2000.

One in six Americans now lives in a home with at least two adult generations. Horror of horrors. What is becoming of the American Dream!?!




Previous Day's Trading Room Results:

Trade Date: 3/19/10

E-Mini S&P Trades*
(before fees and commissions):


1) B/away buy @ 8:33am at 1164.75 = -1.00 & -1.00 (2 lot)

2) OTF sell @ 11:06am at 1154.75 = +0.50 (1 lot)

3) Algorithm positions (1)

4) "Reading the Tape" positions (7) ...combined Secret's, Algo, & "Reading the Tape" total...+0.75



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