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It seemed like great news upon a quick glance of the headline indicating that mortgage activity recovered in the latest week measured. However, the data grew suspect when I noticed that the increase came despite further increases in mortgage rates. Finally, I lost complete confidence in the reported improvement once I noticed there was an adjustment involved in this week's comparison for the Memorial Day holiday. I have been following economic reports closely for years now, and I am aware of what seems like imperfect adjustments for holidays around some data points, including the weekly mortgage activity data. So, if you bought into real estate securities, the shares of mortgage financiers or other real estate relatives on the sole basis of this report, you might want to reconsider. Judging by the turn in these stocks since their higher open, it seems many of you are. There is still some opportunity to capture profit on the downslide of the securities which are still higher, namely homebuilders' shares. I believe real estate relative securities should be sold on this rising rate catalyst until the Federal Reserve fixes the mess it has made.

The Mortgage Bankers Association (MBA) published its latest Weekly Applications Survey for the period ending June 7, 2013. The MBA's Market Composite Index, measuring mortgage activity, improved by 5% in the period. The index was equally driven by refinance actions and by application activity around home purchases, with each sub-index also up 5% on the week.

The news was welcomed by real estate relative securities at the open of trading today, but it seems the market caught wind of the data issue by noon. Homebuilders are still higher and so a short-term short opportunity may exist in those. You can see major mortgage lenders; Bank of America (NYSE:BAC) and PHH (NYSE:PHH) are sharply lower, as is mortgage REIT American Capital Agency (NASDAQ:AGNC) on the news. The key catalyst is that rates are still rising; it's also the key giveaway about the flaw I see in the data.


June 12, 2013 Through Noon

Bank of America


PHH Corp.


SPDR S&P Homebuilders (NYSEARCA:XHB)


PulteGroup (NYSE:PHM)


American Capital Agency


Mortgage rates have been on the rise since the start of May, and really took off when the Fed last approached the microphone and the newswire on May 22nd. This week's report from the MBA showed rates increased again across all the major mortgage loan types.

Mortgage Loan Type

Ave. Contracted Rate

Weekly Change

30-Yr. Fixed Conforming Loan


+8 Basis Points

30-Yr. Fixed Jumbo Loan


+5 BPS

30-Yr. Fixed FHA Sponsored


+5 BPS

15-Yr. Fixed Mortgages


+9 BPS

5/1 ARMS


+2 BPS

I have been the only voice noting a problem about some economic data around holidays, especially three-day weekends. I believe data is imperfectly adjusted around holidays because I suspect there's no accounting done for the drop-off of business the day before a holiday weekend (Friday) and the day after (Tuesday). It's likely that the data keepers simply account for the holiday itself, which is fine but incomplete in my view.

As a result of my theory and analysis, I would recommend any vote of confidence investors found in the report be reconsidered. The telltale sign problem still exists is that interest rates were still higher. I suggest traders take any profits still on the table on any short-term win, and sell any real estate relative securities held for short-term reasons. The catalyst of rising rates is still working against this group, and will impact those it has not already impacted, in my view.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.