Demand for Home Loans Plunges Mortgage lending declined to the lowest level in 14 years in the first quarter as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans, the latest sign of how rising interest rates have dented the housing recovery.
Mortgage lending declined to the lowest level in 14 years in the first quarter as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans, the latest sign of how rising interest rates have dented the housing recovery.
Lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance. (…)
The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing. Loans for home purchases were basically flat from a year earlier and down from the fourth quarter.
(…) The data also show bigger lending declines at the nation’s largest banks, a sign that smaller banks are continuing to wrest back market share. The nation’s top two lenders, Wells Fargo & Co. and J.P. Morgan Chase & Co., reported 28% declines in lending from the fourth quarter, compared to 23% for the industry as a whole.
The top 25 lenders accounted for 63.9% of all originations in the first quarter, also a 14-year low. That is down from 65.3% at the end of last year and a high of 90.9% in 2008, according to Inside Mortgage Finance. The declining market share of the big banks reflects decisions they made to exit certain business channels in 2010 and 2011.
Lenders not only face a more competitive environment with lending demand dropping, but they must also focus more heavily on loans to buy homes, which are more time intensive than loans to refinance. “Margins and profitability will be tremendously difficult this year for mortgage companies,” said Anthony Hsieh, chief executive of loanDepot.com, a closely-held mortgage bank based in Foothill Ranch, Calif.
Meanwhile, there are some signs that lenders have begun to gradually ease the conservative standards they adopted five years ago in a bid to boost volumes. More lenders have reported accepting borrowers with slightly lower credit scores and with lower down payments. (…)
Some economists say a bigger problem facing the economy is consumers that are too weak. Too many can’t borrow because they have high levels of debt, damaged credit from the recession or insufficient incomes to become home buyers, and looser credit standards aren’t likely to easily address those challenges. (…)
But don’t forget this important factor (chart from Sober Look): 
Yuan Continues Slide, and It Hasn’t Hit Bottom The tumble in China’s yuan is showing no signs of letting up, with the currency falling near daily for three straight months as the economy slows, fueling fears that the slide has further to go.
The tumble in China’s yuan is showing no signs of letting up, with the currency falling near daily for three straight months as the economy slows, fueling fears that the slide has further to go.
The yuan has dropped 3.4% against the dollar since the end of January to a 16-month low, more than double the previous three-month decline seen two years ago, when investors retreated from risky markets amid the depths of the European debt crisis. In the offshore market, where the currency is freely traded, the yuan is falling at an even faster pace.
On Friday, the yuan dropped as much as 1.6% from the so-called parity rate, a daily peg for trading of the yuan against the U.S. dollar set by the central bank, the widest gap ever. The decline also threatens to worsen tensions with trading partners like the U.S. who are pushing China to allow the currency to appreciate further, even after a more than 30% climb since 2005.
World commodity markets are turning more positive toward China as the country continues to import massive amounts of resources like iron ore, copper and soybeans even as economic growth slows.
Fears of a hard landing for China’s economy, which grew at its slowest pace in 18 months in the first quarter, have driven prices for many commodities sharply lower this year. That has compounded broad price declines since 2011, spurred by China’s decelerating economy and a wave of new supply of many raw materials.
Now, many investors and analysts are betting prices have bottomed. They contend China’s government is likely to avert an economic meltdown and that growth will stabilize at current levels around 7%. While that is below the double-digit expansions of the past decade, the economy is now so large it will continue to suck in rising quantities of raw materials for years to come, they argue. (…)
Some commodities, including iron ore, nickel and aluminum, in the past month have begun to recoup their 2014 losses. Copper prices are up about 5% since hitting a 3½-year low in March, with April futures settling at $3.1365 a pound Thursday. Soybeans for May delivery settled at $14.720 a pound Thursday, up 12% for the year. Soybean prices have risen steadily as demand from China has depleted U.S. stockpiles, which are forecast to fall to the lowest in a decade at the end of the marketing year in August. (…)
China’s demand for commodities has proved robust. Imports of iron ore by volume grew 19% on year in the first quarter, the fastest pace since 2010.
Shipments of copper rose 24%. Soybean imports climbed by more than a third. Domestic steel production hit a record high in March, despite repeated government promises to shut loss-making mills and reduce overcapacity.
The economy is now so large that even slower growth rates can deliver massive new demand. (…)
In technical analysis, the term “golden cross” refers to a chart formation where a short term moving average crosses above a longer term average as both averages are rising. When one of these crosses occurs it is considered to be a positive formation and indicative of higher prices ahead. While the theory behind a golden cross and its implication of higher prices sounds convincing, in practice it doesn’t always pan out.
A case in point is the price of WTI crude oil. Just over a week ago (4/14), WTI’s 50-DMA (red line) crossed above the 200-DMA (green line). This was the first golden cross of these moving averages for WTI since November 2010, and it got a lot of technicians bullish on crude. Since that golden cross, however, crude oil prices are down by 2.5%. So far at least, it hasn’t been such a golden cross.
While crude oil is down since its golden cross on 4/14, looking back at the performance following prior golden crosses, the returns have been positive. The 
table to the right shows each golden cross for WTI crude oil since 1990. One month after those prior occurrences, WTI was up four out of six times for an average gain of 2.8%. Three months later crude averaged a rally of 4.1% with positive returns half of the time. Finally, in the six months following the prior golden crosses for crude oil, the commodity averaged a gain of 12.1% with positive returns two-thirds of the time.
S&P Cuts Russia’s Rating Standard & Poor’s cut Russia’s credit rating to one notch above junk, sending Russian stocks and the ruble lower.
Moscow’s MICEX stock index fell by 1.5% after S&P cut its rating on Russia one level, to BBB-minus from BBB, citing large capital outflows in the first quarter.
“In our view, the tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” S&P wrote in its report. (…)
In a note to clients from Moscow, Citigroup said it saw a strong chance of the ruble heading back toward recent lows “since a lot of people were underestimating the situation in Ukraine, hoping for nice and friendly resolution after Geneva deal.” There are hardly any reasons to hold a positive view on the currency right now, it said.
Fears over the latest escalation of conflict in Ukraine dragged global stocks down. (…) The German DAX index—highly sensitive to any deterioration in Ukraine because of Germany’s strong trade links with Russia—fell 1.1%. The U.K.’s FTSE 100 lost 0.4%.
(…) The Russian central bank unexpectedly increased its benchmark interest rate 50 basis points to 7.5 per cent amid growing concern about the financial and economic fallout from increasing tensions with the west over Ukraine. (…)
The Russian central bank issued a downbeat assessment of the country’s economy, noting that “the uncertainty of the foreign policy situation” was having a “negative impact” on output and investment.
It said that the decision was driven by “increased inflationary risks”, which is a top concern for policy makers as Russians still have painful memories of previous episodes of currency devaluation and price increases in 1997-8 and 2008-9. The rouble has weakened 9 per cent so far this year and core inflation hit 6 per cent in March, above its target of 5 per cent. (…)
(…) But according to the data released on Friday, Tokyo core consumer prices – excluding fresh food – rose 2.7 per cent from a year earlier, the highest rate since April 1992, but slightly lower than economists’ expectations of 2.8 per cent.
Had retailers raised prices of all taxable items in the core CPI by the full amount of the tax increase, inflation would have risen 1.7 per cent. Taking that into account, core Tokyo prices rose 1 per cent in April, the same pace of increase as in March.
Investors can breathe a bit easier as earnings season approaches the halfway mark.
Some 203 companies in the S&P 500, or 41%, have reported quarterly results thus far, with 69% of them posting profits ahead of analysts’ expectations, according to Thomson Reuters. An average of 63% of companies beat estimates each quarter, according to the firm’s data which go back to 1994.
First-quarter profit growth is coming in at a 2.9% rate, according to Thomson. That’s ahead of the flat growth rate analysts were predicting ahead of the reporting period.
(…) the “CAPE index is rather high,” but adds that this ratio first achieved public prominence when he and his colleague presented it to the Federal Reserve board in 1996. He says CAPE was kind of high then too, but then it kept going up for almost three more years.
“Rather high”! In my book, the third highest level in a 135 years is more than rather high. If you really believe in this ratio, just get out of stocks and be patient. But read this before (The Shiller P/E: Alas, A Useless Friend).
The more consistent and useful Rule of 20 Barometer says the S&P 500 Index remains just under fair value of 2006 (using trailing earnings of $109.03 expected after Q1’14).
Here’s a 60-year chart. Notice that valuations have not dared crossing the “20” fair value line this entire cycle:
New report calls U.S. a ‘rising star’ of global manufacturing A new ranking of the competitiveness of the world’s top 25 exporting countries says the United States is once again a “rising star” of global manufacturing thanks to falling domestic natural gas prices, rising worker productivity and a lack of upward wage pressure.
The report, released on Friday by the Boston Consulting Group (BCG,) found that while China remains the world’s No. 1 country in terms of manufacturing competitiveness, its position is “under pressure” as a result of rising labor and transportation costs and lagging productivity growth.
The United States, meanwhile, which has lost nearly 7.5 million industrial jobs since employment in the sector peaked in 1979 as manufacturers shipped production to low-cost countries, is now No. 2 in terms of overall competitiveness, BCG said.
The biggest factor driving the U.S. rebound, according to BCG: cheap natural gas prices, which have tumbled 50 percent over the last decade as a result of the shale gas revolution.
Also contributing to the country’s attractiveness, according to BCG, is “stable wage growth” – a euphemism for the fact that, in inflation-adjusted terms, industrial wages here are lower today than they were in the 1960s even though worker productivity has doubled over the same period of time.
“Overall costs in the U.S.,” the report’s authors write, “are 10 to 25 percent lower than those of the world’s ten leading goods-exporting nations other than China” and on par with Eastern Europe.
Another standout in the rankings is Mexico, which BCG categorizes as a “rising star” with lower average manufacturing costs than China. But the country failed to make BCG’s list of Top 10 manufacturers because of other factors, including rampant crime and corruption. (…)
Here is BCG’s ranking of the world’s Top 10 countries in terms of manufacturing competitiveness:
1. China
2. United States
4. United Kingdom
6. Netherlands
7. Germany
8. Italy
9. Belgium
10. France
I have been writing on this since 2011. See THE AMERICAN MANUFACTURING REVIVAL and The U.S. Energy Game Changer
AMERICAN ENTREPRENEURSHIP
John Mauldin’s recent Outside the Box letter had this story:
It is been a busy day for me here in Dallas. Besides nonstop meetings and conversations and my usual reading, I had the privilege of going to the Dallas branch of the Federal Reserve and watching President Richard Fisher make loans to a group of budding entrepreneurs to build lemonade stands. It is part of a fabulous organization called Lemonade Day. The basic concept is to enable young children to learn about entrepreneurship and capitalism by helping them launch a lemonade stand. Youth who register are taught 14 lessons from their entrepreneurial workbook, with either a parent, teacher, youth organization leader, or other adult mentor supervising. At the conclusions of the lessons, they are prepared to open their first business… a lemonade stand. Local businesses and banks volunteer to empower these kids by making them a $50 loan and helping them set up their business. By the time they come to talk with the “banker,” they have a business plan and a set of goals as to what they will do with them profits they make. Watching these kids respond to adults asking them about their plans brings joy to your heart.
On May 4, in some 35 cities across the country, 200,000 young people will be building lemonade stands and trying to turn a profit. If you drive by a lemonade stand, stop and support America’s future entrepreneurs. If you are in one of those 35 cities (click here to find out), make a point to find a few lemonade stands and support America’s future. And if you don’t have a lemonade stand in your city, consider following in the footsteps of local heroes (and my good friends) Reid Walker and Robert Alpert, who decided to launch Lemonade Day here in Dallas. This should be a spring ritual in every city in the country.
LEGEND:
Red = Town has previously shut down kid-run concession stands.
Yellow = Town says kid-run concession stands are illegal unless the kids obtain at least one city permit.
Green = Town permits kid-run concession stands without requiring any permits.
(…) Pay As You Earn allows students under certain circumstances to borrow an unlimited amount and then cap monthly payments at 10% of their discretionary income. If they choose productive work in the private economy, the loans are forgiven after 20 years. But if they choose to work in government or for a nonprofit, Uncle Sugar forgives their loans after 10 years.
For aspiring community organizers who go to college and then grad school before moving into a job that the government defines as public service, the forgiven debt can be $150,000 or more, courtesy of the taxpayer. And unlike with some other federal programs, when the government forgives the debt of one of the exalted class of nonprofit or government workers, the do-gooder doesn’t have to report it as income to the IRS. Who wouldn’t want to pick up $150,000 tax-free? (…)
Jason Delisle of the New America Foundation has been tracking the expanding red ink. He notes that in 2010 when the President first sketched out the idea for Pay As You Earn, the cost of permitting past borrowers to use the program’s “more generous terms was approximately $1.7 billion. The administration reported the cost for the same proposal in 2013 as approximately $3.5 billion. In 2014 it quoted the cost at approximately $7.6 billion.” Look for the estimates to keep rising—especially after this fall’s election.
This might seem like a windfall for the students, but the only clear winners are the universities that are the ultimate recipients of the taxpayer money. While the students may technically get the freebie, the impressionable youngsters, who likely have little or no wealth, are being given an enormous financial incentive to pursue careers in government or at low-paying nonprofits.
The consequences for our economy are no less tragic than for the individual borrowers. They are being driven away from the path down which their natural ambition and talent might have taken them. President Obama keeps talking about reducing income equality. So why does he keep paying young people not to pursue higher incomes?
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