Morning Report: Existing home sales rise

Vital Statistics:

 

Last Change
S&P futures 2937 8.5
Oil (WTI) 56.34 0.64
10 year government bond yield 1.61%
30 year fixed rate mortgage 3.83%

 

Stocks are higher this morning on no real news. Bonds and MBS are down.

 

The Fed is at Jackson Hole today and tomorrow. There is a chance that they could say something market moving, so just be aware.

 

Initial Jobless Claims fell to 209,000 last week, while the Markit PMI showed a deceleration. Note the manufacturing PMI fell below 50, which is a sign of contraction.

 

Existing Home Sales rose 2.5% in July, according to NAR. On a year-over-year basis, sales were up about half a percent. Half a percent isn’t anything to get excited about, however it is the first annual gain in a year and a half. “Falling mortgage rates are improving housing affordability and nudging buyers into the market,” said Lawrence Yun, NAR’s chief economist. However, he added that the supply of affordable housing is severely low. “The shortage of lower-priced homes have markedly pushed up home prices.” The median home price was $280,800 an increase of 4.3% YOY. Since the market bottomed in 2012, homes in the lower-priced half rose at a considerably faster pace than those in the higher priced half. In some areas, they more than doubled off the bottom.

 

Inventory remains the biggest issue for sales, with only 1.89 million units in inventory, which represents a 4.2 month supply. This is partly why NAR is working with FHA to increase the universe of condos which would qualify for GNMA guarantees. Sales increased everywhere but the Northeast. The first time homebuyer fell to its recent average of 32%, which is lower than the pre-crisis average of about 40%. Despite the continued disappointment in housing, the homebuilder stocks are doing well and the XHB homebuilding ETF is up about 31% this year versus 19% for the S&P 500.

 

XHB

 

The FOMC minutes were non-eventful, however the statement “Participants generally judged that downside risks to the outlook for economic activity had diminished somewhat since their June meeting.” was a bit of a head-scratcher given they decided to cut rates. Overall, the doves based their arguments on a deceleration in manufacturing, persistently low inflation and risk management. “Several” FOMC members argued against cutting rates, judging the economy “was in a good place” and some worried that lowering the Fed Funds rate would inflate asset prices. Others worried about the signal a rate cut would send to the market’s about the Fed’s perception of the economy. Also, a couple voters wanted to cut rates by 50 basis points.

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