Mortgage Activity Corrupted by Unholy FHA Premium Increase

Mortgage activity declined through the week ended April 22. While the pre-Easter period is a spur for consumer spending, it's a drag on real estate and mortgage activity. However, an unholy hike in FHA premiums played an even more pivotal role in the drop-off.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Mortgage Activity Corrupted by Unholy FHA Premium Increase

The Mortgage Bankers Association reported on mortgage activity for the week ending April 22, 2011. The period that encompasses Passover for Jews and Holy Week for Christians may be a spur for consumer spending, but it delays home shopping. Thus, mortgage activity carried an unnatural weight against it in this latest reporting period, especially since Good Friday was a holiday for many.

The MBA reported that its Market Composite Index of mortgage activity decreased by 5.6% on a seasonally adjusted basis. We would normally look toward Holy Week as the reason behind the decrease, but that's where analysis reveals there was an even more important factor at play last week.

Purchase Activity, or the index measuring mortgages taken out on home purchases, fell by 13.6% on a seasonally adjusted basis. Behind this, government sponsored purchase applications dropped 26.6%, as an increase in FHA premiums came into effect. Over recent weeks, informed home buyers moved to purchase before the premium hike, driving government purchase applications up 20% through the four weeks leading up to the change. Thus, some of the natural flow of activity was pulled forward and drawn out of this last week's activity and likely from several weeks to come.

The Refinance Index was far less active through the period, slipping 0.6% from the previous week. Contracted rates on 30-year and 15-year fixed rate mortgages were relatively unchanged through the period, decreasing to 4.8% (from 4.83%) and 4.03% (from 4.07%), respectively. The big drop-off in purchase activity helped to lift back up the refinance share of overall activity, to 61.6%, from 58.5%.

In conclusion, this latest bit of mortgage activity data is a weak resource for the forecasting of the real estate market. It was far too corrupted by nonrecurring factors, and the change in FHA premiums may affect several more weeks of activity.

Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), BB&T (NYSE: BBT), CIT (NYSE: CIT), Bank United (NYSE: BKU), First Citizens (OTC: FCNCA.PK), Synovus (NYSE: SNV), United Bankshares (Nasdaq: UBSI), Hampton Roads Bankshares (Nasdaq: HMPR), WesBanco (Nasdaq: WSBC), City Holding (Nasdaq: CHCO), Sandy Spring (Nasdaq: SASR), First Citizens (OTC: FCBN.OB), SCBT Financial (Nasdaq: SCBT), Wilmington Trust (NYSE: WL), WSFS Financial (Nasdaq: WSFS), Southside Bancshares (Nasdaq: SBSI), Stellar One (Nasdaq: STEL), Union First Market (Nasdaq: UBSH), Eagle Bancorp (Nasdaq: EGBN), First Bancorp (Nasdaq: FBNC), Ameris (Nasdaq: ABCB), The Bancorp (Nasdaq: TBBK), First Community (Nasdaq: FCBC), Capital City (Nasdaq: CCBG), Financial Institutions (Nasdaq: FISI), National Bankshares (Nasdaq: NKSH), Citizens & Northern (Nasdaq: CZNC), Charter Financial (Nasdaq: CHFN), Seacoast Banking (Nasdaq: SBCF), TIB Financial (Nasdaq: TIBB), American National (Nasdaq: AMNB), United Community (Nasdaq: UCBI), Middleburg Financial (Nasdaq: MBRG), Heritage Financial (Nasdaq: HBOS), Zions Bancorp (Nasdaq: ZION), East West Bancorp (Nasdaq: EWBC), City National (NYSE: CYN), Bank of Hawaii (NYSE: BOH), SVB Financial (Nasdaq: SIVB), Westamerica (Nasdaq: WABC), Cathay General (Nasdaq: CATY), Umpqua (Nasdaq: UMPQ), Glacier Bancorp (Nasdaq: GBCI), Pacific Capital (Nasdaq: PCBC), PacWest (Nasdaq: PACW), Western Alliance (NYSE: WAL), First National Alaska (OTC: FBAK.OB), First Interstate Bancsystem (Nasdaq: FIBK), Nara (Nasdaq: NARA), West Coast (Nasdaq: WCBO), TriCo (Nasdaq: TCBK), Territorial (Nasdaq: TBNK), Washington Banking (Nasdaq: WCBO), Bank of Marin (Nasdaq: BMRC), Hanmi (Nasdaq: HAFC), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), United Bankshares (Nasdaq: UBSI), Bank of New York Mellon (NYSE: BK), MB Financial (Nasdaq: MBFI), Astoria Financial (NYSE: AF), New York Community (NYSE: NYB), Hudson City (Nasdaq: HCBK), People's United (Nasdaq: PBCT), First Niagra (Nasdaq: FNFG), Capitol Federal (Nasdaq: CFFN), Washington Federal (Nasdaq: WFSL), Investor’s Bancorp (Nasdaq: ISBC), Northwest Bankshares (Nasdaq: NWBI), Sterling Financial (Nasdaq: STSA), Ocwen (NYSE: OCN), Flagstar (NYSE: FBC), Provident (NYSE: PFS), Colombia Banking (Nasdaq: COLB), Kearny (Nasdaq: KRNY), Brookline (Nasdaq: BRKL), Dime Community (Nasdaq: DCOM), Flushing Financial (Nasdaq: FFIC), Danvers (Nasdaq: DNBK).

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Home Prices Threaten to Pierce into Double Dip Territory

That housing double-dip we warned of long ago, that is now so clearly visible, is near being officially declared. Case Shiller reported that its indices covering the nation's most major Metropolitan Statistical Areas (MSAs) were at the dark threshold that marks double-dip territory (base on price). That said, the price chart offers some hope, tempered though by active disruptive threats to underlying demand.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Home Prices Threaten to Pierce into Double Dip Territory

Case Shiller, in conjunction with Standard & Poor's, reported that its price composite indices covering the nation's largest cities had each fallen 1.1% in February. The 10-City and 20-City Composites were 2.6% and 3.3% below prior year levels, respectively. Most intriguing was the fact that the 10-City Composite was just 1.5% higher than the trough set in April of 2009, and the 20-City Index was about there already. From peak to trough, with the peak set in June/July 2006, prices are down about 32.5%. Another month of decline and both indices could very likely mark a new trough, officially registering double-dip in price terms.

Prices are now about where they were in the summer of 2003, and the damage is widespread. Nineteen of the 20 MSAs Shiller measures saw price decrease during February. And if you are thinking it was a weather driven change, you would be wrong, since 14 MSAs recorded negative returns for six consecutive months or more. The trouble continues from light economic activity, high unemployment and the heaven burden of the flood of distressed properties weighing on real inventory.

That said, the chart seems to show sign of turn in price, and certainly spring demand is at play. Just a day before the pricing data release, New Home Sales were reported for March (more recent), and it showed an increase in the annual pace of sales to 300K. That was above economists' views, as was the Existing Home Sales pace reported last week.

Both data points still offered less than enthusing absolute levels of sales. Also, gasoline price increase, along with food and other goods, is undermining consumer demand even while prices for homes are falling and spring is dawning. The delicate balance could be thrown off by so many factors, not least of which is fuel pricing. So while it would appear that home prices are nearing a more natural bottom, these other disruptive factors remain capable of producing paradigm shift yet again. Under such circumstances, it's simply more difficult than usual to accurately forecast real estate recovery.

Yet, keep in mind that homebuilders shares should precede the broader recovery, and benefit from any turn in real estate sales. This is a point I've made regularly. However, a big problem arises from increasing market awareness of a sluggish recovery weighed by new constraints including rising food, fuel, commodity and other prices. Uncertainty is prominently positioned in the forecast for the years ahead. That could halt a homebuilder spurt in its tracks, or at least delay it until a more driving recovery emerges.

Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), 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), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

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.

Jobless Claims Indicate Labor Stall

Last week, we tracked Weekly Initial Jobless Claims as they climbed above the important psychological threshold of 400K. While this week's report from the DOL showed claims eased from that level, it unfortunately illustrated a still troubling bump in claims trend. Last week, we theorized that the government shutdown threat may have played a role in pulling claims forward, and this week's data seems inconclusive in proving or disproving our theory.

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Jobless Claims Indicate Labor Stall

Weekly Initial Jobless Claims were reported for the week ending April 16 this morning. Claims eased from the prior week's revised mark of 416K, down to 403K. Unfortunately, that still pulled the four-week moving average of jobless claims higher by 2,250, to 399K.

This troubling trend, and the fact that claims have again found steady ground above the psychological threshold of 400K, could increasingly bother the stock market should it continue. The flow of jobless claims paralleled the action of the market in 2010. Of course, other economic improvements also coincided with and followed stock gains through the span, and we cannot say with certainty that deterioration in claims activity would harm stocks now. But it certainly makes logical sense that stocks would be depressed by deterioration in an already weak labor market.

Through the lagged April 9 period, insured unemployment stayed at 2.9%, where it was found the week before as well. Insured unemployment numbered 3,695,000, down 7,000 from the week before. However, the total number of unemployed Americans claiming benefits under all programs, including from unemployment insurance extensions, numbered 8.3 million.

In our last report covering weekly claims, we theorized that the prior week's bump up above 400K might have been tied to a rush of filers and the swift work of DOL employees to file paperwork ahead of the potential government shutdown. This week's data is somewhat inconclusive as to whether there was such an impact, as we would have looked for claims to have returned toward the 380K to 390K range as a result. Just 10K from that range, it's difficult to pass judgment either way.

It is not without possibility that the government shutdown factor combined with natural labor market softening, arising from global uncertainty, budget concern and rising resource pricing, to negatively impact weekly jobless claims. Gasoline prices especially have impacted consumer sentiment, and so hiring personnel at both large and small businesses would be expected to be tentative in progressing with growth now. We'll have to keep an eye on this report in the weeks ahead to discern if the trend is changing, and if labor gains are stalling.

The highest insured unemployment rates in the week ending April 2 were in Alaska (6.0 percent), Puerto Rico (5.0), Idaho (4.4), Oregon (4.4), Pennsylvania (4.3), Wisconsin (4.3), New Jersey (4.2), Rhode Island (4.2), California (4.1), Connecticut (4.1), and Montana (4.1).

The largest increases in initial claims for the week ending April 9 were in California (+25,646), North Carolina (+6,041), Kentucky (+5,202), Texas (+5,108), and Florida (+4,299), while the largest decreases were in Minnesota (-403), Iowa (-389), Maine (-55), and Wyoming (-9).

Article should interest investors in Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), SFN Group (NYSE: SFN), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), American Surgical (OTC: ASRG.OB), Medical Connections (OTC: MCTH.OB), iGen Networks (OTC: IGEN.OB), St. Joseph (OTC: STJO.OB), General Employment Enterprises (NYSE: JOB), Total Neutraceutical (OTC: TNUS.OB), TeamStaff (Nasdaq: TSTF), Stratum (OTC: STTH.OB), Purespectrum (OTC: PSRU.OB), Corporate Resource Services (OTC: CRRS.OB), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM).

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.