The conclusion: the second housing bubble may have already popped…The following comment from Mark Hanson should pour cold water on anyone who still harbors any delusion that there is a “housing recovery” or that any transitory, cheap-credit driven price hikes, will persist.
Mass Layoffs in Mortgage Space
Large scale, sudden mortgage finance job loss on deck…will impact weekly claims. Rates a stiff headwind to house prices, bank earnings, consumer spend, home improvement et al.
After 5 years of interest rates being forced incrementally lower each year — and everybody that qualifies refinancing over and over again allowing the banks to originate and earn several points off of each gov’t loan churn — the jig is up for a while at least. The mortgage market is now so efficient — and rates have been at historic lows for so long — there is simply nobody on the proverbial “fence”.
This morning I was made aware that three large private mortgage bankers I follow closely for trends in mortgage finance ALL had mass layoffs last Friday and yesterday to the tune of 25% to 50% of their operations staff (intake, processing, underwriting, document drawing, funding, post-closing). This obviously means that my reports of refi apps being down 65% to 90% in the past 3 weeks are far more accurate than the lagging MBA index, which is likely on its’ way to print multi-year lows in the next month.
As I stress in the note below, the “refi capital conveyor belt” is a quiet, yet powerful economic driver. Not only do refi’s grease homeowners balance sheets and have been responsible for the lions” share of mortgage-centric US banks’ earnings over the past few years but they are huge for the labor market.
With respect to jobs, well over 100 individuals touch one refi from loan application printing/shipping, up-front processing (appraisal, credit, bank/job verifications, title, escrow etc), to lender underwriting, document drawing, and funding, and through post-closing including securitization and trustee services. So when the refi door slams shut it’s a macro headwind for which few account. In fact, many model the exact opposite…that rising rates is great for banks and the economy.
Leading indicator is limit down today, losing 25% of its value in 70 days!
The Power of the Pattern reflected that a key economic asset could fall 50% in value back on 3/18, due to 20-year channel resistance and 75% bulls. (see post here)
Lumber was trading at $385 at the time, today lumber is limit down trading at $287, losing 25% of its value in 70 days!
CLICK ON CHART TO ENLARGE
The above chart reflects that 100% of the time Lumber hit the top of its trading channel, it has fallen at least 50% in value, over and over for the past 20 years! I doubt that many of you trade lumber and many of you might be saying….”why should I care about Lumber, I don’t own it!”