|10 year government bond yield||3.46%|
|30 year fixed rate mortgage||6.17%|
Stocks are lower this morning after Microsoft’s earnings missed Street expectations. Bonds and MBS are up.
Mortgage applications increased 7% last week as purchases fell 1% and refis rose 15%. “Mortgage rates declined for the third straight week, which is good news for potential homebuyers looking ahead to the spring homebuying season. Mortgage rates on most loan types decreased last week and the 30-year fixed rate reached its lowest level since September 2022 at 6.2 percent,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Overall applications increased with both gains in purchase and refinance activity, but purchase applications remained almost 39 percent lower than a year ago. Homebuying activity remains tepid, but if rates continue to fall and home prices cool further, we expect to see potential buyers come back into the market. Many have been waiting for affordability challenges to subside.”
The increase in refis sounds great, but we are coming from extremely low levels. The chart looks like Ask Jeeves circa 2002.
We are seeing the financials increase provisions for credit losses. Capital One provisioned $2.4 billion, which was a big increase from $1.9 in Q3 and $388 million a year ago. Given Capital One’s credit card exposure this is a warning that the consumer might be facing some trouble.
In other consumer banking results, we saw increases in provisions from Ally and Synchrony as well. For Ally, provisions are back towards pre-pandemic levels.
One bank that bucked the trend was Western Alliance, which provisioned only $3.1 million in credit losses in Q4 compared to $28.5 million in Q3. Asset quality remains robust, and charge-offs are low. Given that Western Alliance has some hefty exposure to the mortgage industry, this result is encouraging.
Homebuilder D.R. Horton announced earnings this morning that missed Street expectations, as earnings fell 13%. Revenues were slightly positive. Net sales orders fell 38% and the cancellation rate rose to 27%. Backlog fell 46%. “Beginning in June 2022 and continuing through today, we have seen a moderation in housing demand caused by significant increases in mortgage interest rates and general economic uncertainty. While these pressures may persist for some time, the supply of both new and existing homes at affordable price points remains limited, and demographics supporting housing demand remain favorable.” The company is guiding for gross margins to fall to about 20% – 21%. This suggests that they might need to cut prices in order to move the merchandise.
Rising costs have been discouraging Millennials from buying a home, however most are accepting the higher costs and adjusting their plans accordingly. They are increasing their savings, spending more than they had hoped (which is probably typical for any first-time homebuyer), and delaying purchases. Most will simply have to come to grips with the fact that the 3% mortgage rates of the pandemic are probably not coming back, at least in the near term.