|US dollar index||88.0||0.2|
|10 Year Govt Bond Yield||1.62%|
|Current Coupon Fannie Mae TBA||103.3|
|Current Coupon Ginnie Mae TBA||104.2|
|30 Year Fixed Rate Mortgage||3.52|
Markets are higher this morning after the ECB hinted at further stimulus down the road. Bonds and MBS are down.
The Fed Funds futures are now pricing in a 47% chance of 1 more rate hike this year. That probability was 20% about 10 days ago. That is what has been driving the 10 year yield back up.
We have a bunch of economic data this morning.
Existing home sales rose 1.1% to an annual pace of 5.57 million, according to the NAR. This is up 3% YOY, and is the highest level since February 2007. All regions except the Northeast reported an increase. The median home price rose 4.8% to $247,700. This puts the median home price to median income ratio at 4.3x, which is extended versus its historical range of 3.2x – 3.6x. Of course interest rates are influencing this as well, but it looks like home prices are beginning to run a little too far, too fast. Below is a chart of incomes versus home prices, indexed back to 1975. This doesn’t really speak to bubble behavior – it speaks to the caution out of the homebuilders who are reluctant to add supply. The current inventory of houses for sale is about 4.6 month’s worth, while a balanced market is about 6.5 months.
Initial Jobless Claims slipped 1,000 to 253k last week. We should be seeing an increase given this is the season for re-tooling factories, however we aren’t, and we are hitting all-time lows for initial jobless claims, which goes back to the 1960s. To put it in perspective, the last time initial jobless claims were around these levels, we had a military draft.
House prices rose 0.2% month-over-month in May and are up 5.2% YOY, according to the FHFA House Price Index. The East Coast continues to lag while the Left Coast is still hitting high single digit YOY appreciation. The index as a whole has recouped all of the losses from the real estate bust. Remember, the FHFA House Price index only looks at houses with a conforming mortgage, so it ignores the extremes of both ends of the spectrum – distressed and jumbo.
The Philly Fed index fell to -2.9 while the Chicago Fed National Activity Index rebounded to +.15. The Bloomberg Consumer Comfort Index slipped again to 42.9, while the Index of Leading Economic Indicators rose to 0.3%.
PulteGroup announced earnings this morning, beating estimates and announcing a new value creation plan. They will buy back up to $1.5 billion in stock over the next 18 months, and reduce land investment. This is a bit of a surprise given that revenues increased 41%, and average selling prices increased 11%. Pulte has been targeting the first time homebuyer pretty aggressively, and given the pent-up demand, they probably should be investing in the business instead of buying back stock.
D.R. Horton also announced this morning, with earnings coming in line with expectations. Revenues increased 9% and earnings increased 13%.