Wednesday, September 10, 2014

Poor Jobs Report Followed by Drop in Mortgage Applications

Recently we asked the question: Is the Economy Getting Better or Worse? Jim Rickards and others say the economy never really recovered and is now heading back down. The FED says they see a slow but steady recovery. So we are tracking to see who is right. The latest economic reports support Rickards and friends.

Last week the jobs report came in well below expectations and now CNBC reports mortgage applications have fallen to a 14 year low. Here are some quotes from the CNBC article:

"Just a slight trend higher in interest rates was enough to stall both potential home buyers and borrowers looking to refinance their loans."
"Total mortgage application volume fell 7.2 percent last week from the previous week on a seasonally adjusted basis, according to the Mortgage Bankers Association (MBA). The weekly index is now at its lowest level since December of 2000. "

"The purchase application numbers are particularly troubling, as all-cash buyers move out of the housing market, leaving mortgage-dependent buyers to pick up the slack. Fall is usually the season where first-time home buyers are most active, but this cohort has had the most trouble participating in the housing recovery, due to tighter credit and weak job and wage growth. Even government-insured loans, which offer lower down payments, are seeing far lower application volumes, down 18 percent from a year ago."
My added comments:

This is the conundrum for the FED we have noted before. Can they really withdraw from their support of the economy without tanking it? This article notes that just a minor rise in interest rates caused a big drop in mortgage applications.

The big question is: Can the economy stand on its own two feet without artificial support from the FED in the form of asset buying and near zero interest rates? In Europe the answer appears to be no with the ECB caving in to announce an asset buying program and reducing interest rates in "an effort to stave off deflation" as Bloomberg put it.

If the answer is no in the US, what does the FED do then?

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