(Photo: REUTERS)
The Commerce Department reports new, single-family home sales increased by 18 percent in August to an annualized rate of 504,000 units, the highest level since 2008. Wall Street expected sales to rise to an annualized rate of 430,000 units.
Though the short-term data report was optimistic, economists worry over a serious of reports out this week suggesting the housing market is struggling and incapable of floating without high risk.
The average number of mortgage applications for the week ended Friday fell 4.1% from the week earlier, according to the Mortgage Bankers Association weekly survey released Wednesday.
The seasonally adjusted purchase index was down 0.3 percent from the previous week and the unadjusted purchase index ticked up 2 percent from the previous week. However, it was down 16 percent from the year-earlier period, mirroring another report released Tuesday by the Federal Financial Institutions Examinations Council, which found the number of mortgage originations declined 11 percent last year to 8.7 million from 9.8 million in 2012.
The decline was caused primarily by a drop in refinance mortgages for one- to four-family properties, which fell by over 1.5 million or 23 percent, according to the report.
Meanwhile, the MBA said the refinance share of mortgage activity fell to 56 percent of total applications, down from 57 percent measured the previous week. The adjustable-rate mortgage share of activity increased to 8 percent of total applications.
Adjustable mortgage rates accounted for a large share of the high risk, subprime mortgages that crashed the U.S. economy in 2007 – 2008. Until recently, we had little recourse to gauge the amount of risk circulating in the housing market.
AEI’s National and State Mortgage Risk Indices provide the first-ever measure of how mortgage loans originated month-by-month would perform under severely stressed conditions. The National Mortgage Risk Index for home purchase was little changed at 11.28 percent in August from July (revised), according to a report from AEI’s International Center on Housing Risk.
“There continues to be little discernible volume impact from the QM regulations on the share of loans with debt-to-income ratios (DTIs) greater than 43 percent,” AEI’s email to PPD stated. “Subprime lending by FHA issuers continues at a strong pace in response to government calls for expanded use of the FHA credit box.”
The average rate on 30-year, fixed-rate mortgages with conforming loans — in other words, loans with balances up to $417,000 — increased to 4.39 percent, while rates on 30-year, fixed-rate mortgages with jumbo-loan balances– or, higher than $417,000 — rose to 4.3 percent.
But the notable number from the MBA index, regarding AEI’s National and State Mortgage Risk Indices, was that the average rate for 30-year, fixed-rate mortgages backed by the Federal Housing Administration rose to 4.08 percent from 4.03 percent the prior week.
Data from the AEI index confirms the impact of two policy statements reported by PPD made by Mel Watt, director of the Federal Housing Finance Agency (FHFA), and Shaun Donovan, secretary of HUD, which backed-off tight restrictions that required sound lending practices. The policies represent a return to a pre-crisis mindset and are repeating the mistakes of the subprime mortgage crisis. The government is again loosening lending practices in an effort artificially increase housing market data, such as mortgage applications.
The MBA report also claimed the average rate for 15-year, fixed-rate mortgages was unchanged at 3.56 percent, while the 5/1 ARM average rose to 3.2 percent, up from 3.19 percent the week prior.
