Due to the enormity of collecting and reporting all the data at one time, I’m trying something different this month. I will be posting the real estate update in sections as each is complete. We’ll start today with an update of the mortgage applications. That will be followed by a report in the demand side- purchase contracts and sales. Next will come a report on the supply side- vacant and existing units, and then a report on price trends. By breaking the report into smaller pieces I hope to be able to provide you with the updates on a timelier basis. The main drawback is that without having had a complete overview until I’ve reviewed all the data, I won’t be able to provide a big picture summary at the beginning of the reports until the last in the series is complete.
The Mortgage Applications index dropped to its lowest point in 8 years at the end of October. The bailout of Fannie and Freddie last summer had the opposite effect of what was hoped for, as spreads on Fannie and Freddie paper widened dramatically versus Treasuries, pushing mortgage rates higher. I have warned in the Fed Report for several years that when the foreign central banks ended their subsidies for GSE paper, it would have a catastrophic impact on the US housing market. Looking at the second chart below, which shows the purchase applications and refi applications separately, it’s clear that collapse of this market is accelerating. This has finally forced the GSEs and other major mortgage lenders to take the dramatic step of mass mortgage modification taken today.
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