TRADEX GLOBAL INTERNAL
COMMENTARY
Mortgage
applications fell again for the third straight week.
In the
week ending August 23rd, mortgage applications for both refinancing and home
purchase fell 2.5%, following a 4.6% decline the prior week. The 30-year conforming mortgage rate rose to
4.80%, the highest level so far this year. The “refinance” component (…and the number
most important to our IO portfolios) was down 5.4% last week. The refinance share of total mortgage
activity slid to 60%, the lowest level in two years! All these numbers
and a soft “new” homes number has the rates market looking for a clear sign of
what the Fed will do with tapering. We
are not going to even take a guess as to whether tapering starts in September, December
or early in 2014. All we know for sure
is that it is going to be sooner than later. The IO component of the Tradex Liquid Real Estate
Portfolio, which has positive convexity to rates, is already showing positive
results within certain collateral. Some securities
have risen approximately 10 to 15% over the last two months as rates backed up
and mortgage refinancing’s fell off the cliff. The floating rate RMBS component of the Portfolio
is enjoying much improved fundamentals, as is the CMBS component. In CMBS, where most bonds are fixed rate, the
interest rate exposure is mostly swapped (hedged) out, putting the entire
Liquid Real Estate Portfolio in a potential ‘goldilocks’ environment. That being said, we will still closely monitor
Washington and the FHA for any new developments or any changes in HARP that
might affect IO’s. Keep nimble and enjoy the Labor day holiday – Michael Beattie
EXTERNAL
RESEARCH COMMENTARY
Applications for U.S. home loans fell for a third
straight week as average mortgage rates hit their highest level this year,
although demand for purchase loans increased, data from an industry group
showed on Wednesday. The Mortgage Bankers Association said its seasonally
adjusted index of mortgage application activity, which includes both
refinancing and home purchase demand, fell 2.5 percent in the week ended August
23, after sliding 4.6 percent the prior week. The decline came as 30-year
mortgage rates rose 12 basis points to 4.80 percent, the highest they have been
so far this year, according to MBA data. The survey covers over 75 percent of
U.S. retail residential
mortgage applications, according to MBA. Borrowing costs have climbed by more
than a percentage point since late May on the view that the Federal Reserve
will soon reduce its monthly bond purchases, which have kept a ceiling on
rates. The Fed began the bond purchasing program nearly a year ago to boost a
sluggish recovery in the U.S. economy.
Higher rates have dissuaded borrowers from refinancing existing home loans. The
refinance index fell 5.4 percent last week, and the refinance share of total
mortgage activity slid to 60 percent, the lowest since April of 2011. The gauge
of loan requests for home purchases, a leading indicator of home sales, held up
better, rising 2.4 percent. Housing has been a bright spot in the U.S. recovery,
with prices rising steadily since early 2012. But economists expect the pace of
that increase to slow as the year winds down. A separate report last week
showed sales of new single-family homes fell sharply in July to their lowest
level in nine months. That has injected some uncertainty into the debate about
when the Fed will start slowing its stimulus. Markets largely
expect the Fed to pull back next month, though many analysts say the U.S.
central bank will think twice about higher long-term interest rates if there is
evidence the rates are hurting housing. Still, rates remain low by historical
standards and most economists do not expect the higher costs to end the
recovery altogether. In the short-term, it could also spur potential buyers to
act before rates rise further.
Tradex Global Advisory Services, LLC
investorrelations@thetradexgroup.com
203-863-1500
@Tradex_Global
