Wall Street Greek

Editor's Picks | Energy | Market Outlook | Gold | Real Estate | Stocks | Politics
Wall Street, Greek

The Wall Street Greek blog is the sexy & syndicated financial securities markets publication of former Senior Equity Analyst Markos N. Kaminis. Our stock market blog reaches reputable publishers & private networks and is an unbiased, independent Wall Street research resource on the economy, stocks, gold & currency, energy & oil, real estate and more. Wall Street & Greece should be as honest, dependable and passionate as The Greek.


Seeking Alpha

Wednesday, January 20, 2010

Mortgage Trends Show Real Estate Steadying

mortgage trends real estate steadying, studio arts queens florist
The real estate market appears to be steadying based on mortgage activity trends, but the quick-trigger trader might see more than the modest improvements in-depth due diligence uncovers

Visit the front page of Wall Street Greek to see our current coverage of Wall Street, economic reports and global financial markets.

Relative Tickers: NYSE: BAC, NYSE: FRE, NYSE: FNM, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: PNC, NYSE: JPM, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ and more.

Mortgage Trends Show Real Estate Steadying


Wall Street business news stock marketOftentimes, the headline of an economic report sparks quick-trigger traders to react in error, or on a false base. Today's Weekly Mortgage Applications Survey offers us an opportunity to illustrate this point.

This morning, the Mortgage Bankers Association released its report on weekly mortgage trends for the period ended January 15. Mortgage activity improved robustly for the second week in a row on another move lower in fixed mortgage rates. However, the four-week moving averages for the MBA's indexes, which reduce the noise factor tied to interest rate volatility, paint a somewhat different picture.

With the average contracted rates for 30-year and 15-year fixed rate mortgages dropping to 5.0% (from 5.13%) and 4.33% (from 4.45%), respectively, mortgage activity picked up on a weekly basis. The MBA's Market Composite Index jumped 9.1% on a seasonally adjusted basis, driven greatly by a pick up in refinancing activity. The association's Refinance Index improved 10.7%, as mortgage holders moved to lock in better rates.

The Purchase Index, which measures mortgage application volume for new purchases of homesteads, increased 4.4%, and may offer deeper insight investors should consider. The gain in Purchase Activity may signal an early start to the hot spring real estate season. This is possible since a home purchase is a pre-planned action that takes time to effect, where refinancing can be effected more quickly. That said, homebuyers will often time their related mortgage contracting in order to make the best economic deal, and that could be captured in a weekly spurt of activity.

The report seems super positive, until inspection of the longer-term trend. Weekly mortgage activity, measuring week-to-week changes, tends to be highly sensitive to like changes in mortgage interest rates. Thus, the MBA also publishes a four-week moving average of activity in order to help us see the true picture more clearly. In this case, the data does not result in quite the same cheery feeling.

The four-week moving average for the seasonally adjusted Market Composite Index is actually down 1.0% from the prior week's check up. Within this general measure, the Refinance Index is down 2.4% over the longer-term period. That is because rates have actually risen through the period. However, we do find more good news in relative Purchase Activity, as the MBA's Purchase Index rose 1.1% since the last check. This is likely due to real benefit from the government's extension and expansion of the First-Time Homebuyer Tax Credit.

Excluding the impact of the tax credit, other real estate data trends seem to concur on a current situation characterized by real estate stability. Both housing inventory and the pricing situation have improved substantially since the real estate trough, offering solid signs of stabilization. Still, the market continues to work uphill, given tight lending constraints and the strained state of many borrowers with unemployment elevated.

The lesson here is that a moving average is a valuable tool for the process of measuring and forecasting when dealing with volatile data points like mortgage activity. Reading past the headline and into the meat of economic reports also offers significant insight the frantic trader might miss. In this case, there seems evidence of real, however modest real estate market improvement. The frantic trader might have read the gains as hot though, where the deep thinker sees only a modestly improving environment. In the trader's world, this likely affects the time period and conviction for holding a given security, and can make the difference between profit and loss.

Expanding, the fundamental investor may still find a securities' valuation environment that already matches an only modestly improving real estate market. In time, a day's gain might then settle. Of course, the only way to tell that is to take this another step to the valuation process, and that would be more appropriate for a separate article.

forum message board chat rooms mortgage trends real estate

Editor's Note: This article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (NYSE: FRE), Fannie Mae (NYSE: FNM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), PNC Financial (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ) and Avatar Holdings (Nasdaq: AVTR).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

queens florist

Labels: ,

free email financial newsletter Bookmark and Share

1 Comments:

Anonymous Tax preparer said...

Is an interesting post..
Thanks for the post..

12:58 AM  

Post a Comment

<< Home