Epain Homes

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage decreased 7 basis points since last week to 4.97% while the purchase application volume decreased 1.8% and the refinance application volume increased 14.5% compared to last week’s results.

It’s important to recognize that while the Federal Reserve’s “quantitative easing” measures have worked to push down fixed rates and resulting in two separate booms of refinance activity earlier in the year and what appears to be a third one shaping up now, purchase activity still appears to have been only lightly effected.

Even with historically low lending rates both refinance and purchase application volume appears lackluster and possibly even still in an overall declining trend.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).

The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).

Yesterday, CNBC’s Steve Liesman reported what he termed a potentially “calculus changing” event for the Friday’s employment situation report.

The latest ISM manufacturing employment index breached 50 indicating expansion in manufacturing employment and, as Steve noted, there have been very few instances where total nonfarm payrolls have declined (on either a month-to-moth or year-over-year comparison basis) during periods where the ISM manufacturing employment index is at or over 50.

This would appear to imply that Friday’s number could come in much stronger than anticipated.

Looking at the following chart, you can see quite clearly that Steve is right in his assertion.

The green vertical bars show instances where the ISM index is over 50 but the nonfarm payroll number declined on a year-over-year basis while the purple vertical bars highlight month-to-month instances.

One thing to note from the chart above though is that since 1985 the ISM’s manufacturing employment index has rarely been above 50 so the overall significance of an “ISM vs Employment Situation” mashup may be minimal… but still… the employment index appears to be indicating pretty strongly that manufacturing employment is expanding.

Again though, given the circumstances, it is more likely that manufacturing swung into expansion as a result of the cash for clunker “autos and homes” programs and resultant dynamics and not organic economic expansion.

Today, the U.S. Census Bureau released their September read of construction spending showing a continuation of the government’s tax-carrot fueled bounce in residential construction spending while indicating an acceleration in weakness to non-residential construction spending.

Even with the governments tax-credit gimmick residential construction spending is still 26.96% below the level seen last year and a whopping 62.16% below the peak set in March 2006.

Worse off though was private single family residential construction spending which declined 34.99% as compared to September 2008 and a truly grotesque 76.39% from the peak set in February 2006.

Non-residential construction spending, currently accounting for just under half of all private construction spending, posted another significant year-over-year decline of 15.42%.

The following charts (click for larger versions) show private residential construction spending, private residential single family construction spending and private non-residential construction spending broken out and plotted since 1993 along with the year-over-year and peak percent change to each since 1994 and 2000 – 2005.

Do you have a plan B? A MUST WATCH… last night’s Frontline. Aw Shucks… poor bastards on the upper-east side.

The White House says it has already “saved or created” 650K jobs… only problem… since just this January, 3.386 million jobs have actually been lost and the losses are continuing… Jared Bernstein says the figure is closer to a million jobs “saved or created” and adds “It’s a great example of the unprecedented transparency, where the American taxpayer can point and click and see their taxes creating jobs … you have to understand the nature of Keynesian stimulus”… I say it’s a new low for government falsehoods and propaganda and so does the AP.

If they can’t manage their own finances why should they be influencing yours?

J.P Morgan Analyst James Glassman thinks unemployment could trend down this winter… He also predicted back in 2000 that the DOW would reach 36,000 and wanted to help you profit from it.

It seems to me that the size of crews repairing roadways is getting substantially smaller … just a few guys and some serious machinery… definitely not long lines of guys with shovels as in the 1930s depression era… When we think about infrastructure stimulus it’s easy to imagine lots of potential employment… Is this misguided?

Is it any surprise that a people in Nevada are encouraging children to play with matches?

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims decreased 1,000 to 530,000 claims from last week’s unrevised 531,000 claims while “continued” claims decreased 148,000 resulting in an “insured” unemployment rate of 4.4%.

As with the last few weeks, today’s results indicate that initial claims are continuing to stay elevated while continued claims is presenting a slow descent.

It’s important to consider that with net non-farm payrolls (as well as likely job hires and job openings) still firmly in decline, declines to the continued claims series are could largely the result of many recipients simply reaching the end of their benefit period.

Are we on the verge of a new upturn in joblessness or just in a slow trend down from last year’s epic shakeout?

If firms go for another substantial round of layoffs and job cuts during the fall to early winter (…the typical period of increasing job cutting activity regardless of economic conditions) we could see an unemployment super-spike form whereby two years of significant job cutting activity merge into one large period of unemployment.

Of course there are many ways that the job picture could trend but if firms underestimated their cutting last year and need to cut even deeper this year, it would clearly differentiate this period from most of the past post-WWII recessionary periods.

Clearly, careful attention needs to be paid to these indices to see how they reflect the state of the job market as we move further into the second half of the year.

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The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

I have added a chart to the lineup which shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

As you can see, acceleration to claims generally precedes recessions and vice versa.

Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).

In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a “flattening” period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the “mid-cycle slowdown” where for various reasons growth has generally slowed but then resumed with even stronger growth.

Until late 2007, one could make the case (as Fed chief Ben Bernanke did on several occasions) that we were again experiencing simply a mid-cycle slowdown but now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing “initial” and “continued” unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

The most notable feature of the post-“dot com” recession era that is, unlike other recent post-recession eras, job growth had been very weak, not succeeding to reach trend growth as had been minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

It is now completely clear that the potential “mid-cycle” slowdown that appeared to be shaping up in late 2007, had been traded for a less severe downturn in the aftermath of the “dot-com” recession, and resulted, instead, in a mid-cycle meltdown.