All Things in Moderation

Vital Statistics;

Stocks are lower as we await the Fed decision at 2:00 pm today. Bonds and MBS are up small.

New home sales fell 2.5% month-over-month to 697k. This was below Street expectations of 727k. This was up 23.8% on a year-over-year basis. The median sales price fell 4% on a YOY basis to $415,400.

Pulte reported second quarter earnings yesterday. Revenues rose on a combination of a modest increase in units and average sales prices. Pulte focuses on first-time, move-up and active adult buyers, which means it doesn’t play in the luxury sandbox. Gross margins increased on a sequential basis and the cancellation rate was only 9%.

Pulte said on the conference call that the supply of existing homes for sale will probably remain limited as long as mortgage rates are above 5% as many would-be sellers are balking at selling their current home and buying another with a 7% rate. Consumer demand remains strong, and new construction will benefit from this effect.

On the earnings call, the company was asked about the high gross margins, and it said that it is changing the way it is allocating incentive money. Previously, the company might have used upgrades to entice buyers, however today it is using incentives to buy down the mortgage rate. The company said that 5.5% is sort of the “sweet spot” for buyers. This implies that the gross margin of 30% is somewhat overstated since the company is eating that buydown cost in the lower price it gets for the mortgage.

Pacwest and Banc of California agreed to merge, which put some starch in the regional banks. The combined company will get a capital injection from private equity which will enable the banks to sell some of their underwater MBS. The net effect will be to make the combined assets smaller.

Western Alliance has been on a tear recently, and it looks like it has put the crisis pretty much behind it.

Mortgage applications fell 1.8% last week as purchases decreased 3% and refis fell 0.4%. Refis are down 30% on a YOY basis. “Mortgage rates were essentially flat last week but remained high, with the 30-year fixed rate staying at 6.87 percent and contributing to a pullback in mortgage applications,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The 2.5 percent decline in purchase activity, partly driven by a 10 percent decrease in FHA applications, pushed the purchase index to its lowest level in over a month. The decrease in FHA purchase applications contributed to an increase in the overall average purchase loan size to $432,700, its highest level since the end of this May. Refinance applications remained lackluster, running 30 percent behind year-ago levels. Many borrowers remain on the sidelines given current rates and persistent affordability challenges.”

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