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Sancho Panza

U.s. Mortgage Market Index Hits Lowest Since December 2000

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Reuters 30/4/14

'(Reuters) - Applications for U.S. home mortgages fell last week to their lowest level since December 2000 as both refinancing and purchase applications declined, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 5.9 percent to 333.2 in the week ended April 25. That was the lowest level since December 2000, the group said.

"Purchase application volume remains weak despite other data which indicated the overall pace of economic growth is picking up. The combination of higher rates, new regulation and tight inventory are all leading to a weaker spring market than we have seen in years," said Mike Fratantoni, MBA's chief economist.

The MBA's seasonally adjusted index of refinancing applications declined 6.9 percent, while the gauge of loan requests for homeicon1.png purchases, a leading indicator of home sales, fell 4.4 percent.

Fixed 30-year mortgage rates averaged 4.49 percent in the week, unchanged from the week before.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.'

WSJ 30/4/14

'Stress Tests Forecast $190 Billion in Losses at Fannie Mae, Freddie Mac in Severe Downturn

Fannie Mae FNMA -0.51% and Freddie Mac FMCC -1.51% could require another $190 billion in government support under a worst-case economic scenario, according to stress test results made public Wednesday by the firms' federal regulator.

The stress tests, mandated by the Dodd-Frank financial-regulatory overhaul, are designed to forecast potential losses in a "severely adverse" economic environment. The projections released Wednesday by the Federal Housing Finance Agency "are not expected outcomes," the regulator said in its report.

The stress tests are designed to be similar to those conducted by the Federal Reserve to measure the capital adequacy of large banks and insurance companies.

Fannie and Freddie were seized by the U.S. government in 2008 through a legal process known as conservatorship as losses threatened to wipe out thin capital reserves. The Treasury agreed to inject vast sums of aid to keep the companies afloat, and it ultimately provided $188 billion in infusions. The rebound in home prices since 2012 has boosted the fortunes of the companies, which have returned $203 billion to the Treasury in the form of dividend payments.

Under their existing contracts with the government, Fannie and Freddie aren't allowed to retain most of their earnings, which are instead sent to the Treasury. While those arrangements have helped the companies to make taxpayers whole on their 2008 bailouts, they also prevent the companies from having any further buffer against losses.'

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Where the US goes the UK will follow!

I've never been a fan of low volume recoveries in asset markets.Always get the sense that there's a lot of 'sucker seeking' going on.

The big build up in US prices was funded via Fannie and Fred and the idea that prices can levitate on F+F with no capital is just plain bull.

Edited by Sancho Panza

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Still a long way to go, but some signals which could be interpreted as weaknesses developing. Imo Gov/Banks are moving into position to let the market fall. Houses owned outright/equity rich/investors, are of little use to the banks when no one is paying mortgage debt to them.

Much better to write volume mortgages at 50% the current price, at 5%+ over 30 years. Tax revenues too, and younger consumers with some money left to spend. This could be the best crash of all time, with UK no choice but to follow.

One of the latest entries from the Doc. (23rd April 2014)

Some thought that once investors pulled back that regular buyers would step into the fold with massive incomes to purchase these high priced shacks. That simply isn’t happening. Inventory is building up across markets in the state. People continue to buy but people were buying well into 2007 when prices were clearly insane. Through the insanity, you are also seeing more homes having reduced price offers which in 2013 was an oddity in itself. As it turns out prices do matter and investors are running the numbers and don’t purchase properties based on absent minded mantras and “buying always makes sense” type of rhetoric.
Inventory in the L.A. County area is up 15 percent year-over-year. In the spring of 2013 you had house lusting zombies loading up in minivans going to open houses as if they were following a rock star. You had families bringing in multi-generations to beg sellers to give them a taste of that sweet World War II built shack. The only thing missing was a t-shirt saying “take my money please!”
Doc's blog articles and the comments from his readers are usually entertainingly insightful.

http://www.doctorhousingbubble.com/cash-buyers-california-investor-buying-underwater-homeowners/

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Enjoy your hobnobs. Remind me who one of the biggest players has been in buying up loads of US properties, at prices beyond what many FTBs would think value, to turn into rentals for younger people?

Some of the posters at doc's are much worse off than those at HPC, despite being high-earning young professionals (some others have bought into the HPI recovery-glory at high prices).

Million-Dollar Home Sales Thrive While Low End Stumbles
By Prashant Gopal May 2, 2014
In downtown Miami, many young professionals aren’t able to purchase in condo towers near their jobs because lenders require higher down payments in buildings where more than half of the units aren’t owner-occupied, said Bo Mastykaz, an agent at Redfin. Investors bought many of the condos that were built in the development boom of the last decade and are now renting them out to young people.
...In states where prices have risen the most in the past two years -- including Florida, California, Nevada, Arizona and Georgia -- institutional investors have helped worsen the inventory crunch by buying thousands of single-family homes and converting them into rentals.

http://www.bloomberg.com/news/2014-05-02/luxury-home-sales-jump-as-low-end-falters-in-u-s-rebound.html

Edited by Venger

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It is worth repeating this presentation in this thread. 40 slides

I personally think that despite the differences between the US and UK markets that there are a lot of similarities coming out.

(note though, the guy has a 'position' on shorting the homebuilders so it won't be unbiased)

http://www.businessinsider.com/gundlach-2014-sohn-conference-presentation-2014-5?tru=J6og3#jeffrey-gundlachs-ira-sohn-presentation-1

Yes,I saw some graphs are 2011+ whilst the better ones go back to 1998.There are more than a few that resonate.

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Flashing distress signals to me - unless it's the new new normal.... forever cash buyers, outbidding one another... and landlords just feed on younger people for rents, if rents hold up, or are even yielding at current selling prices.

Mortgages could turn out to be almost unnecessary in this future. Wonder what banks will do to make profits?

All Cash U.S. Home Purchases Surge With Rising Rates: Mortgages
By Dan Levy and Alexis Leondis May 8, 2014 5:00 AM
..“Lending is so tight, and even if you do get a loan you’d have to jump through a bunch of hoops first,” Leffel, 44, said. “I like buying with cash, because then I can control my investments.”

..“As institutional investors pull back their purchasing in many markets across the country, there is still strong demand from other cash buyers, including individual investors, second-home buyers and even owner-occupant buyers,” RealtyTrac’s Blomquist said.

In Manhattan, buyers are using cash for trophy apartments and to gain an advantage over borrowers who must depend on loans to finance a purchase. Pej Barlavi, owner of brokerage Barlavi Realty LLC in Manhattan, said three of his five current clients buying homes prevailed with all-cash offers.
Barlavi said two of them are hedge fund managers who used year-end bonuses to buy the properties: a $2.2 million two-bedroom apartment in Midtown, selling for $150,000 above the asking price; and $1.5 million for a one-bedroom in Tribeca. His client in the second transaction was “nudged higher by a foreign buyer” before being chosen by the seller, Barlavi said.

http://www.bloomberg.com/news/2014-05-08/cash-u-s-home-purchases-surging-as-rates-rise-mortgages.html

And:

1 May 2014

As mortgage volumes decline, lenders are suffering losses. Only 58 percent of independent mortgage banks and bank home-loan units were profitable in the final quarter of 2013, according to a Mortgage Bankers Association survey. JPMorgan Chase & Co., the second-biggest U.S. mortgage lender, said in April that its origination business lost money last quarter and would again do so in the second period.
..Some of the largest lenders aren’t scaling back standards. JPMorgan, Bank of America Corp., the third-largest mortgage lender, and No. 5 Citigroup Inc. haven’t changed lending standards this year, according to their spokesmen.
“The regulatory environment now is just so much stricter, there’s not much you can do,” said Brian Simon, chief operating officer of New Penn Financial, the lender owned by mortgage-bond pioneer Lewis Ranieri’s Shellpoint Partners LLC. “It’s generally not our game plan to chase volume by loosening up on quality.”
..“It’s important not to mistake the claim that we should expand access to credit because many worthy borrowers remain locked out of the market, with one that we should return to the days of reckless and unsustainable lending,” he said. “The two are not the same.”

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Where the US California goes the UK will follow!

I used to think that. Turns out it's not true!

A small state with its own currency can do miracles.

Edited by okaycuckoo

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