Morning Report: Increase in rates has cut refinanceable population in half

Vital Statistics:

	Last	Change
S&P Futures	2209.0	-1.0
Eurostoxx Index	346.3	2.0
Oil (WTI)	50.4	-0.5
US dollar index	91.1	0.0
10 Year Govt Bond Yield	2.37%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	4.1

Markets are flattish this morning on no real news. Bonds and MBS are up small as global bonds rally on speculation the ECB will continue buying bonds into next September.

Mortgage applications fell 0.7% last week as purchases rose 0.4% and refis fell 1%. 

Job Openings were little changed at 5.5 million last month, according the JOLTs job openings report. Job openings are more or less at the all-time highs of the index, which goes back to 2000. The quits rate is the key to the report: an increasing quits rate foreshadows wage inflation. So far, the quits rate is pretty much stuck at 2.1%. 

Appraisals are coming in light for about 10% - 13% of all contract prices. This is mainly a problem in the hot markets where low inventory is creating bidding wars and buyers overpay. 

Sentiment surveys are partisan to some extent. Prior to the election, Republicans were bearish on the housing market and Democrats were bullish. Now that Donald Trump has won, the parties have switched outlooks. It shows why you should generally take these sentiment surveys with a grain of salt. That said, the fundamentals of the housing market are strong with tight inventory and low rates (despite the Fed being in a tightening cycle). 

Gallup's Job Creation Index ticked up last week to 33, which means the percentage of firms planning to increase hiring minus the percentage of firms planning to cut jobs is 33%. Note that this is based on a telephone survey of workers, who may or may not know what their company's actual plans are. 

The post-election sell-off in the bond market has cut the refinanceable population in half, according to Black Knight Financial Services. The last time the refinanceable population was this small, refis were 37% below last quarter's. The new rules on VA IRRLs will exacerbate that drop in refi volume. Going forward refi volume will be driven more by home price appreciation as people with mortgage rates from they heyday regain the home equity to refinance at today's rates. Also, with the Fed tightening, now is a good time to look at swapping out from an ARM to a 30 year fixed. If the 35 year bull market in bonds is really finally over, locking in a low rate makes sense. 

Mortgage credit availability improved last month according the the MBA. Credit availability increased for all 4 buckets: government, conventional, conforming, and jumbo. While the index has doubled since 2012, it is still at about 20% of the level set during the height of the bubble. It probably won't increase meaningfully until either (a) the private label market returns, or (b) the government and GSEs increase the credit box. 

It is no secret that the real estate sector is still largely done the way it has been for the past 50 years, with agents representing buyers and sellers, along with a largely manual loan process. Now a new firm is looking to use technology to disintermediate realtors. They pay realtors a 1% fee, and the company has just raised $20 million in Series B financing. Its name is Roofstock. It is a niche market - targeting sellers of tenant-occupied properties - however it could catch on.