Wells Fargo’s economics group broke down the season challenges in the housing market. We wanted to know what impact the current weather has had on the housing market – has the impending drought and warm weather in the west or the winter storms in the east had more of an impact than normal seasonal swings? November through February are typically some of the least important months of the year for home sales and new builds. While this represents 1/3 of the calendar year – historically, it is only ¼ of new home sales. This lets us assume that much will be determined over the next 6 months in the housing department – as we are entering the traditional purchase making season.
While mortgage traders are saying they see about $1 billion a day from originators – this claim is misleading. We must not forget the all cash buyers, some of the daily trading numbers leave this off. During the past two months, the gross issuance of agency MBS has averaged $67 billion per month, it averaged $150 billion during the first half of 2013. This is a clear case of supply and demand. If supply drops and demand increases – you will see a price increase.
If the monthly gross issuance of agency MBS is going to increase to $90 billion a month by the summer, where is that going to come from? Approximately 52% of the total agency MBS issuance has been coming from purchase transactions recently and the seasonality issue is going to have impact on that also as we move into the spring and summer. The other major impact factor is refinance activity – this contributed $30 billion agency MBS issuance per month in January and February. While rates are showing some increase, there are always some borrowers out there looking for an opportunity to refinance so we should still see a decent refinance contribution.
Overall, things look like they are on pace for a good year, but as was stated earlier, the next 6 months are the key. 2012 and 2013 didn't see much seasonal change in production but historically real estate has always had seasonal issues and 2014 is shaping up to reflect that. Just be thankful we are heading into the strong season of this year.
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