Morning Report: Pending Home Sales fall 6/28/17

Vital Statistics:

Last Change
S&P Futures 2424.0 3.5
Eurostoxx Index 384.6 -1.4
Oil (WTI) 44.1 -0.2
US dollar index 88.3 0.0
10 Year Govt Bond Yield 2.21%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 103.81
30 Year Fixed Rate Mortgage 3.91

Stocks are up this morning after the ECB said that they will continue to stimulate the economy. Bonds and MBS are down

Last week was bad for mortgages as applications fell 6%. Purchases were down 4% and refis were down 9%. The index was up 10% from a year ago, however. The refi share fell a point to 45.6%. Note that applications have an income skew: starter home buyers are still aggressive, while it is the jumbo space that is taking a breather.

Pending Home Sales fell 0.8% in May, which was the third consecutive monthly decline. Lawrence Yun, NAR chief economist, says it’s clear the critically low inventory levels in much of the country somewhat sidetracked the housing market this spring. “Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales,” he said. “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”

As demand for mortgages falls and competition increases, lenders are looking to ease lending standards to capture business, according to the latest Fannie Mae Lender Sentiment Survey. The net share of lenders reporting demand growth fell to a 2 year low, while the number of lenders who expect to ease standards rose to a 2 year high.

More on inventory woes. Trulia found that over the past year, the inventory of starter homes has fallen by 16%. The inventory of move-up homes has fallen by 13%, and the number of luxury homes has fallen by 3.9%. Inventory is so tight in California that only 25% of the homes for sale remain on the market for over 2 months. Trulia’s recommendation to buyers: Move fast, make multiple offers, and be willing to adjust to the seller’s timetable.

Redifin looked at 11 metro areas and found that 33% of the people who bought a home in the past year made an offer without visiting the property. Note to LOs who are worried about rates: Only 5% of the respondents said they would cancel their purchases if mortgage rates topped 5%. The metro areas were Baltimore, Boston, Chicago, Dallas-Fort Worth, Denver, Los Angeles, Portland, San Diego, San Francisco, Seattle and Washington, D.C.

A new ransomware attack is hitting Europe. It is similar to the Wanna Cry attack a few months ago. So far it has not been reported in the US, but it has hit big European companies like advertising giant WPP and shipper Maersk, which has shut down shipping terminals worldwide. The cost to decrypt your machine is $300 in bitcoin. Obviously don’t open suspicious attachments – and also note that the hackers are getting better and better at disguising these attachments. For example, an email might appear to be coming from a vendor you work with frequently, but if you check the actual email address it is clear that it isn’t actually from that vendor.

Separately, it is good news the hackers are asking for a fixed dollar value of Bitcoin, since is has been on a tear the past couple of months.

Janet Yellen said that another 2008 style crisis is not likely in our lifetimes. While she attributes that to regulation and increased capital, the real reason is that only residential real estate bubbles cause this sort crisis. Residential real estate bubbles are the Hurricane Katrinas of banking and economics, and they really only come around ever few generations. That said, we will undoubtedly see another 2008 style financial crisis – it just won’t be in the US. China has an immense real estate bubble and is trying to find a way to deflate it slowly. Canada has one as well, although it is probably tied pretty closely to Chinese money.

MBA head Dave Stevens and ex-FHFA head Ed DeMarco will testify in front of the Senate today on housing reform.

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