Morning Report – Purchase Apps up in spite of rate rise 6/26/13

Morning Report

  Last Change Percent
S&P Futures  1587.9 6.5 0.41%
Eurostoxx Index 2599.1 55.8 2.19%
Oil (WTI) 94.88 -0.4 -0.46%
LIBOR 0.276 -0.001 -0.18%
US Dollar Index (DXY) 82.73 0.144 0.17%
10 Year Govt Bond Yield 2.53% -0.08%  
Current Coupon Ginnie Mae TBA 101.2 0.7  
Current Coupon Fannie Mae TBA 100.7 0.7  
RPX Composite Real Estate Index 205.5 0.2  
BankRate 30 Year Fixed Rate Mortgage 4.58    


Green on the screen in spite of a nasty downward revision in Q1 GDP. Stock futures are holding in while bonds are taking off, with the 10 year yield down 7 basis points from an hour ago. MBS are on the move as well.
The first estimate of Q1 GDP released in late April had growth at +2.5%. That number was revised downward to 2.4% the following month. The third and final revision came in this morning: +1.8%. Hardly robust. It makes you wonder what Bernanke was looking at when he announced QE was coming to a close. 
In spite of the bloodbath in bonds last week, mortgage applications fell only 3%. The MBA purchase index was up 2%. Refis dropped 5.2%. There has been two theories out there about the increase in rates – either (a) the higher rates are going to put people off and they will withdraw from the market or (b) the higher rates are going to get people off the fence, because rates and prices are going up. So far, it looks like its the latter.
One other rate rise datapoint: yesterday: The Conference Board Consumer Confidence Index came in at 81.4, the highest since winter of 2008. Dig into the internals, and you will see the expectations index jumped considerably – this index takes into account a respondent’s view of their own personal financial situation, and shows that so far, the increase in rates has yet to be felt. Of course credit card rates are fixed to prime, which hasn’t moved quite yet, but the early data shows the economy is taking the hike in rates in stride.
Lennar, the big homebuilder who reported better than expected quarterly numbers yesterday, sounded extremely bullish on its conference call. First, they see no evidence that rates are affecting home purchases yet, which comports with what we saw out of the MBA purchase numbers above. Second, they are spotting…. wait for it…. the first time home buyer. Lennar’s average price point is $255k, which puts them squarely in the “first time homebuyer” category. They are noticing “household decoupling” which is a fancy way of saying recent grads are moving out of their parents’ basements. One other interesting tidbit – their price increases were pretty much eaten by increased costs. While lumber did rally hard late last year and into early this year, it has fallen precipitously. So what was the other increased cost? Labor. There is a shortage of skilled labor in many geographical areas. Does that make them bearish? Absolutely not – rising middle class wages is exactly what the economy needs. 
Finally, Census put out new home sales data yesterday. Sales of new single family homes came in at a seasonally adjusted rate of 476,000 in May, up 2.1% from last month and 29% from a year ago. The median sales price was $263,900, while the average sales price was $307,800. These are increases of 10% and 18% respectively, but it is not based on any sort of repeat-sales methodology so you can’t extrapolate existing home price appreciation from it. The difference between mean and median is the widest it has been, which implies most of the action is in the luxury end of the market. There are 161,000 houses for sale at the end of May, which represents 4.1 months’ supply at current sales volumes. As you can see from the chart below, we are still at very, very depressed levels. 

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