Existing Home Sales SOAR In Sept (6.54M Beats Expectation of 6.30M) As 30Y Mortgage Rates Hit All-time Low (2.80%)

More good news for the economy! And housing markets!

Existing home sales in September soared to 6.54 Million units (SAAR), higher than the expectation of 6.30 million units.

Existing home sales are exhibiting a V-shaped recovery.

As Freddie Mac’s 30Y commitment rate hits an all-time low.

Existing home sales hit a 14-year high! Thanks in part to tight inventories.

Median EHS prices hit an all-time high with near all-time low in inventory available for sale.

Seasonality Strikes! Mortgage Purchase Applications Fall By -1.96% WoW, Refi Apps Rise By 0.23% (Purchase Apps Up By 26% Versus Same Week Last Year)

Covid through the mortgage market for a loop. Normally mortgage purchase applications peak in late April or early May, but in 2020 unadjusted purchases applications peaked in mid-June thanks to Covid-19.

Here is a chart showing the seasonality of mortgage purchase applications. And how mortgage purchase application are 26 percent higher than the same week one year ago.

Refi applications? Essentially flat with an increase of only

V-Shaped Recovery In Housing Starts/Permits To Build (1-unit Starts Up 8.52% In September)

The housing starts numbers for September were released this morning and point to a V-shaped recovery for housing markets. 1 unit starts were up 8.52% and permits to build were up 7.8%.

This is a V-shaped recovery for single family housing.

Unfortunately, there is no V-shaped recovery in 5+ unit multifamily housing.

But the overall economy is showing a distinct v-shaped recovery, according to The Atlanta Fed GDPNow forecast model.

A Farewell To ARMs: The Adjustable-Rate Mortgage Share Dwindles To 2% In Latest Mortgage Bankers Association Report)

Back in 2011, former HUD and Freddie Mac Chief Economist Michael Lea wrote an article entitled “Do We Need the 30-Year Fixed-Rate Mortgage?” We argued that plain vanilla ARMs (without teaser rates and other tricked-up products during the housing bubble) offered consumers advantages over fixed-rate mortgages (FRMs).

The answer to that question has just been answered: adjustable rate mortgages as a percentage of all mortgages has fallen to its lowest level since financial crisis and The Great Recession.

The reason? First, consumers flock towards FRMs when mortgage rates decline. In part, thanks to The Federal Reserve’s interest rate policies (as shown below).

Lea and I argued that there are certain advantages to ARMs for consumers (see paper at link), such as a lower mortgage rate on average.

Also, empirically mortgage rates on average fall negating the “fear factor” of mortgage rates rising on an ARM reset.

The latest mortgage applications volumes from the Mortgage Bankers Association shows that the ARM% has dwindled to 2%.

5/1 ARM rates (purple) are currently higher than fixed mortgages rates. The 15-year mortgage rate is the lowest.

Yes, it is A Farewell To ARMs, but not as Ernest Hemingway envisioned.

US Core Inflation Clocks In At … 1.7% YoY And Real Avg Weekly Earnings At 4.1% YoY, Rent Inflation Falls To 2.5% YoY (Taylor Rule Suggests Fed Funds Target Rate Of -0.51%)

Well, the Consumer Price Index less food and energy remain near the same level, 1.7133% YoY and is leading the Core PCE growth of 1.5934% YoY.

US Real Average Weekly Earnings YoY checked it at 4.1% YoY.

US CPI Urban Consumers Owners Equivalent Rent of Residences YoY fell to 2.5% YoY despite massive Fed intervention.

The Rudebusch variation of the Taylor Rule suggests that the Fed Funds Target rate should be at -0.51%.

On a side note, the US Dollar rose and gold got clubbed downwards.

Where Will Mortgage Rates Be In Three Years? Hint: Right Where They Are Now Because The Fed Isn’t Going Anywhere Until 2023

One question that is often asked if “Where Will Mortgage Rates Be In Three Years?”

Take a look at Freddie Mac’s 30Y mortgage survey rate (white line) and M2 Money Velocity (green line). And then overlay The Federal Reserve Balance Sheet, pushing down the benchmark 10Y Treasury Note yield. It is clear that mortgage rates aren’t going up anytime soon.

Look at home price growth and The Fed’s balance sheet. As the Fed began shrinking its balance sheet in 2018 and then the Case-Shiller home price index growth rate started falling … then recovered as The Fed threw more gas on the fire.

Gold? There is also a positive relation to The Fed’s balance sheet.

The Fed isn’t going until at least 2023. So, The Fed is here to stay, distorting markets and prices.

Rock and roll, hoochie koo.