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MBS Highway - Daily Updates 10/26/2022

Current position: Floating


Stocks and Mortgage Bonds are both higher to start the day. Bonds continue their rally higher, and as we will go over in the technical section, have more room to run.


Yesterday, Ohio Senator Sherrod Brown wrote a letter to Fed Chair Jerome Powell urging him to stop hiking rates. He tried to remind him that the Fed has two mandates - Maximum employment and inflation, not just inflation. He explained that Monetary policy takes time to reduce inflation and that more rate hikes would cause job losses.


As a result of the political pressure, our good friend, Peter Boockvar, said this morning that he believes the Fed will hike 75bp in November and 50bp in December... but that would mark the end of Fed rate hikes.


New Home Sales, which measures signed contracts on new homes, fell almost 11% in September at a 603,000 unit annualized pace. This was actually stronger than estimates that were looking for a 13% decline. Sales are now down 17.6% from last year.


There were 462,000 homes for sale at the end of September, but only 56,000 or 12% are actually completed. At the current pace of sales, there is a 9.2 months' supply. But when factoring in the amount of completed homes, the month's supply is 1.1 months.


The median home price rose 8% last month to $471,000 after a 6% decline in the previous report. This is all due to the mix of sales - There was a big uptick in sales of homes in the $500,000 and over segments.



On CNBC today, Diana Olick said that according to the Pultegroup, 24% of contracts were canceled in Q3. While this sounds alarming and has been rising, it's important to note that even in a very hot market you see roughly 15% cancelations.


According to Redfin, when looking at Existing Home Sales, 17% of contracts were cancelled, which sounds bad, but last year 14% were cancelled when rates were much lower and the market was on fire.


Additionally, they reported that 22% of homes for sale had a price drop, but a lot of this could be listing prices that are unreasonable. However, the average sale-to-price ratio was 99.2%, which means that when priced correctly, the homes are moving fast and there are not a lot of price reductions. They also cited that 46% of homes still had multiple offers.


The MBA released their Mortgage Application data for last week, showing that overall application volume is down 69% from last year. Purchases fell 2% last week and are down 42% year over year. Interest rates moved higher from 6.94% to 7.16%, which is the highest rate in 21 years. Rates are now roughly 3.875% higher than this time last year. Refinances were flat and are down 86% year over year. ARMs made up 13% of transactions.


Mortgage Bonds are continuing to rally and have room to go until reaching the 25 - day Moving Average, which is about 20bp above present levels. The 10 - year is now trading at 4.01%, and while there is psychological resistance at 4%, they may want to retest the 25 - day Moving Average at 3.89%] Continue Floating.


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