Borrowers feel rate squeeze from Lenders!

As rise in interest rates is slamming homeowners' demand
for mortgages, prompting large and midsize banks to cut
jobs and warn investors of declining profitability in
the home-loan business.  Wells Fargo, the nation's
largest mortgage company by loan value, told
investors at a conference that it expects mortgage
origination's to drop nearly 30% in the third quarter to
roughly $80 billion, down from $112 billion in the
second quarter.  J.P. Morgan Chase, the largest US bank
as measured by assets, said during the conference
sponsored by Barclays that it expects to lose money on
its mortgage-origination business in the second half of
the year. Bank of America Corp., notified
about 2,100 employees that they were being let go
largely due to a decline in refinancing activity, said
a bank spokesman.  Mortgage origination's include loans
for home purchases and refinancing.  Rates are rising
on investor worries the Federal Reserve soon will take
steps toward reducing an $85-billion-a-month
bond-buying program designed to help stimulate the
economy.  The average rate on a 30-year fixed-rate
mortgage stood at 4.73% for the week ended Aug. 30, up
from 3.60% at the end of April, according to the
Mortgage Bankers Association.
 The National Federation of Independent Business (NFIB)
said today its Small Business Optimism Index slipped
0.1 point to 94 last month.  While details of the
survey were fairly mixed, key indicators such as
planned hiring, capital spending, inventory
accumulation and sales all advanced in August,
suggesting an improvement in sentiment in the months
ahead.  While owners were optimistic about sales, they
were downbeat on earnings. Expectations for business
conditions over the next six months fell again in
August. There was also a decline in the share of owners
saying this was a good time to expand.
 Yep HERE IS Another Housing Bubble.

Four months ago something troubling happened in the
housing market. The home price affordability index
tracked by the National Association of Realtors slipped
below its long-term trend line, marking a possible
beginning of a housing bubble.  We got the
fourth month of home affordability data coming in below
trend, which is a strong confirmation that the housing
market is once again in a bubble. (The NAR index is
published with a two-month delay.

 The affordability index measures the
household income needed to qualify for a traditional
mortgage on a median-priced single family home. So it's
looking at a mortgage with a 20% down payment and a
monthly payment below 25% of income at the currently
effective rate on conventional mortgages.  When the
index is at 100, that means a household earning
the median income has exactly the amount it needs to
qualify for a conventional mortgage on a median-priced
home. When it is above 100, it signals that the median
income is higher than needed to qualify for a mortgage.
An AI score of 130, for example, would indicate that
households earning the median income would have 30%
more income than needed to qualify.

Rising interest rates and rising home prices put
downward pressure on the affordability index�meaning
homes are becoming less affordable.

Rising incomes put upward pressure on the index�meaning homes are more affordable. 

The index has been dropping rapidly since peaking in January at 210.7.

We're now down to 157.8,according to the preliminary numbers.

Home prices have been rising and interest
rates climbing, while wages haven't kept up. That's how
we got to the lowest level of affordability seen since
July of 2009.  According to the NAR, this shouldn't be
dire news. A score of 157.8 officially indicates that a
household earning the median income has 57.8% more
income than needed to get a mortgage on a median priced home. 

Unfortunately, it's not clear that the index is
very useful on its face. The index has never, in fact,
dipped below 100 since the late 1990s. Even during the
height of the last housing bubble, the indexes lowest
score was 101�the affordability nadir hit in July
2006. This is what has led folks like Barry Ritholtz to
declare the index "useless."

A recent paper by three economists from Robert Morris
University in Pennsylvania, however, suggests that the
index can be used to detect housing bubbles. Adora
Holstein, Brian O'Roark, and Min Lu track the index
against its long-term trend line. When the index falls
below trend, it marks a possible start of a housing
bubble. They suggest that when the monthly
affordability index value falls below trend for at
least three months, a housing bubble probably exists.
Using the monthly composite home affordability index
from FRED, the database maintained by the St. Louis
Federal Reserve Bank, we can chart out every single
monthly index report and construct a long-term trend
line.