by Calculated Risk on 2/12/2014 09:41:00 AM

A month ago I mentioned that California is experiencing another drought year. Since California is the largest agricultural state, the ongoing drought could have an impact on food prices - and on the economy.

From the WSJ: Battle Over California Drought Solution

California's drought is becoming a hot issue on Capitol Hill, where bills from Senate Democrats and House Republicans offer rival solutions on how to best aid water-starved farmers.

The Golden State has suffered through a three-year drought that is forcing farmers to leave fallow hundreds of thousands of acres. Other Western states have experienced drought conditions for much of the past decade, prompting water managers across the region to embark on billions of dollars in projects to safeguard and stockpile supplies. Because California boasts a bigger agricultural sector than any other state, the drought could have an outsize economic impact nationally, raising produce prices. A weekend storm dumped rain and snow on Northern California, but officials said that put only a small dent in the drought.

Lawmakers can't make it rain!

Here are a few resources to track the drought. These tables show the snowpack in the North, Central and South Sierra. Currently the snowpack is about 28% of normal for this date.

And here are some plots comparing the current and previous years to the average, a very dry year ('76-'77) and a wet year ('82-'83).

For John Muir Trail hikers, I recommend using the Upper Tyndall Creek sensor to track the snow conditions. This is the third dry year in a row along the JMT.

by Calculated Risk on 2/12/2014 07:02:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 2.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 7, 2014. ...

The Refinance Index decreased 0.2 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier....
...
The average contract rate declined for all loan products in the survey. Contract rates were at their lowest level since November 2013, except for the 5/1 ARM, which was at the lowest level since December 2013.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.45 percent from 4.47 percent, with points increasing to 0.34 from 0.25 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down 67% from the levels in May 2013.

With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013.


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 15% from a year ago.

The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index - but this is still very weak.

by Calculated Risk on 2/11/2014 06:55:00 PM

A great review of Fed Chair Janet Yellen's testimony today from Tim Duy: Yellen's Debut as Chair. A few excerpts:

Janet Yellen made her first public comments as Federal Reserve Chair in a grueling, nearly day-long, testimony to the House Financial Services Committee. Her testimony made clear that we should expect a high degree of policy continuity. Indeed, she said so explicitly. The taper is still on, but so too is the expectation of near-zero interest rates into 2015. Data will need to get a lot more interesting in one direction or the other for the Fed to alter from its current path.
...
Her disappointment in the [employment] numbers raises the possibility - albeit not my central case - that another weak number in the February report could prompt a pause. My baseline case, however, is that even if it was weak, it would not effect the March outcome but instead, if repeated again, the outcome of the subsequent meeting. Remember, the Fed wants to end asset purchases. As long as they believe forward guidance is working, they will hesitate to pause the taper.
...
Yellen reiterates the current Evans rule framework for forward guidance, giving no indication that the thresholds are likely to be changed. Jon Hilsenrath at the Wall Street Journal interprets this to mean that when the 6.5% unemployment rate threshold is breached, the Fed will simply switch to qualitative forward guidance. I tend to agree.

Bottom Line: Circumstances have not change sufficiently to prompt the Federal Reserve deviate from the current path of policy.

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index. This index has been weak lately.

• At 2:00 PM, the Monthly Treasury Budget Statement for January. The CBO estimates that the Treasury ran a deficit of $10 billion in January.

by Calculated Risk on 2/11/2014 04:54:00 PM

Another "bubble" area that has seen rapid price appreciation over the last two years. Now sales are declining and inventory is increasing.

The Arizona Regional Multiple Listing Service reported Statistics for January

• Total Sales are down 17.1% year-over-year.

• Distressed sales are down 59.6% year-over-year.

• Active inventory is up 28.9% year-over-year.

Inventory has clearly bottomed in Phoenix (A major theme for housing last year). And fewer distressed sales - probably less investor buying - and more inventory means price increases will slow.

by Calculated Risk on 2/11/2014 02:38:00 PM

The Freddie Mac Weekly Primary Mortgage Market Survey® will be released on Thursday (the series I usually follow), but here is a release from Zillow today: 30-Year Fixed Mortgage Rate Rises Slightly

Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace 4.14 percent, up from 4.09 percent at this same time last week.

“Rates were essentially unchanged last week despite a weaker than expected jobs report,” said Erin Lantz, director of mortgages at Zillow. “Although this week marks Janet Yellen’s first congressional testimony as the new Federal Reserve Chair, we expect rates will remain fairly flat.”

Additionally, the 15-year fixed mortgage rate this morning was 3.13 percent and for 5/1 ARMs, the rate was 2.80 percent.

This is down from last August when 30 year fixed rates were at 4.58% (Freddie Mac survey), and mortgage rates have been mostly moving sideways (or down a little) since jumping last June and July after Bernanke mentioned that the FOMC could start tapering later in 2013). Last year rates averaged 3.53% in February 2013.