Mortgage applications for home purchases fell almost 7% last week, fading recent gains and hovering once again back at 20 year-lows (entirely unable to reflect the housing ‘recovery' for the average joe). The plunge in applications comes as mortgage rates crash back to 4% – the lowest in 19 months. The reason – apart from unaffordability – is explained by Citi's Will Randow who notes the spillover effects of the “unequivocally good for everyone” drop in oil prices has a dramatic effect on both jobs (prolonged price drop means a loss of ~200k jobs) and housing (starts expected to drop 100k if oil prices remain low). Maybe talking-heads should reconsider that “unequivocally good” narrative.
Mortgage applications tumble back near 20-year lows…
And Architect activity is plunging…
Even as Mortgage rates near record lows…
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As Citi explains, the drop in oil could be responsible for the apparent lack of demand…
The upstream oil & gas industry (i.e. extraction, support activities for operations, and related machinery manufacturing) has added roughly ~0.2M jobs since nonfarm payrolls bottomed in July 2010 (TTM avg), which represents 16% of goods producing jobs added and 2% of total jobs added since then. Assuming a prolonged decline in oil prices below $60 per barrel causes the ~0.2M jobs added to cease, our sensitivity analysis leads us to believe that ~0.1M cumulative US Housing Starts are potentially at risk, factoring in that ~0.2M jobs are eliminated at the current ~1.7 jobs per US household ratio.
Among US homebuilder end-markets, Houston and other parts of Texas appear to have the largest potential risk associated with lower oil prices and related job losses. The last time oil prices sustained (current dollar) price levels below $60 per barrel, annual TX housing permits bottomed at ~40K homes (TTM) versus ~160K homes in October 2014 (TTM), but did eventually recover, even at sustained lower oil price levels. So, similarly, it appears downside risk is near ~0.1M in incremental lost Housing Starts, predominantly in Texas.
