Morning Report: Purchase Application Payments rise 8.3% in February

Vital Statistics:

 LastChange
S&P futures4,47023.2
Oil (WTI)114.32-0.39
10 year government bond yield 2.37%
30 year fixed rate mortgage 4.69%

Stocks are higher this morning on no real news. Bonds and MBS are flat.

Neel Kashkari said that he sees 7 quarter point hikes this year, which would put the ending Fed Funds rate at 1.75%. Kashkari is a prominent dove on the Fed, and his forecast is below the other members.

Fed Governor Chris Waller said that the Fed should be paying attention to housing prices. “With housing costs gaining an ever-larger weight in the inflation Americans experience, I will be looking even more closely at real estate to judge the appropriate stance of monetary policy,” Waller said in prepared remarks for a webinar on housing organized by Tel Aviv University and Rutgers University.

Meanwhile James Bullard said that inflation is “way over” where it ought to be and policy makers need to think bigger and act faster. Waller said last week the Fed should increase by 50 basis points in May and June, and that seems to be the consensus.

He estimated that the Fed’s purchases of mortgage backed securities lowered mortgage rates by 40 basis points. He doesn’t think that home price appreciation is being driven by excess leverage or easy lending, however it does have implications for monetary policy since rent is a big component of inflation. Increasing home prices are a function of a massive supply / demand imbalance and I don’t know what the Fed can do about that.

Durable goods orders fell 2.2% in February, according to Census. Ex-transportation they fell 0.6% and core capital goods orders (a proxy for business capital expenditures) fell 0.3%. These numbers came in below Street expectations.

The labor market remains strong as initial jobless claims fell to 187,000 last week. We are back at levels not seen since the 1960s.

The national median mortgage payment for applications rose 8.3% in February to $1.653, according to the MBA. “Low unemployment has spurred strong income growth in early 2022, but homebuyer affordability has decreased due to the quick rise in mortgage rates amidst steep home-price growth,” said Edward Seiler, MBA Associate Vice President of Housing Economics and Executive Director of the MBA Research Institute for Housing America. “The 30-year fixed-rate mortgage spiked 73 basis points from December 2021 through February 2022. Together with increased loan application amounts, a mortgage applicant’s median principal and interest payment in February jumped $127 from January and $337 from one year ago.”

The MBA’s Purchase Applications Payment Index has been shooting upward as rates have risen.

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