MBS Highway Daily Updates 11/23/2022
Current position: Floating
We wish everyone a happy Thanksgiving holiday with their friends and family. The market and our office will be closed tomorrow but will reopen on Friday. Friday will be a shortened trading session, with the Bond market closing at 2:00 pm ET.
Stocks and Mortgage Bonds are both higher to start the day.
New Home Sales
New Home Sales, which measures signed contracts on new homes, rose 7.5% in October at a 632,000 annualized pace. There was a negative revision to last month, making the gain appear a bit bigger...but even when factoring this in, sales were up 5.5%. This was much better than the 5.5% decline expected. Remember, these sales figures were from last month when rates were half a percent higher - we should continue to see activity pick up.
Sales are now down 5.5% from last year, which is not so bad considering higher rates, inflation, and tight inventory.
There were 470,000 new homes for sale at the end of October, which is up 1.7% from last month. At the current pace of sales, there is an 8.9 month supply. However, only 61,000 or 13% are completed. When looking at the pace of sales vs homes that are completed, there is only a 1.2 month's supply.
The median home price rose 8% last month to $493,000, but this can be skewed due to the mix of sales. There was a big uptick in sales of homes in the $500,000 and over segments. On a year-over-year basis, the median home price is 15% higher.
Initial Jobless Claims
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, increased from 17,000 to 240,000. This was a sizeable increase and is starting to reflect some of the layoffs we have anecdotally been hearing about. Continuing Claims, or those that continue to receive benefits after their initial claim, rose 48,000 to 1.55M and has risen by over 200,000 over the last 7 weeks. The rise in continuing claims likely means that it's harder to find a job once let go.
The MBA released their Mortgage Application data for last week, showing Purchases rose 3% last week, following a 4% rise in the previous report, and are down 41% year over year. Interest rates declined from 6.9% to 6.67%. Last year at this time, rates were roughly 3.25%, which means are between 3 3/8% and 3 1/2% higher today. Refinances rose 2% last week and are down 86% year over year. As interest rates come down further, one inflation report at a time, we will continue to see activity pick up.
We have explained many times that mortgage rates follow inflation and that a Fed rates hike can actually help mortgage rates come down if the Fed is successful in quelling inflation. This is very different from the misinformation in the media and even in our own industry, stating that mortgage rates are higher because of Fed rate hikes. Mortgage rates are higher due to inflation.
Here is some evidence - The Fed hiked 75bp on November 2 and mortgage rates were at 7.25%. But after the lower CPI inflation reading on November 10, rates have come down 0.5%.
Historically, the days the Fed Minutes are released are negative for the markets, especially with how tough the Fed has been talking on inflation and destroying the demand side of the economy. This is something we have to be on guard for, but we shouldn't hear any surprises as we have heard so many Fed members talking over the past two weeks. Hopefully, because of this, the market reaction will be muted, but there could be some knee-jerk reactions.
The 10 - year Treasury Note Yield was pushed lower from the 50 - day Moving Average and is now trading at 3.71%. There is still room for it to move lower until reaching our first target of 3.67%.
Mortgage Bonds are breaking above the formidable Fibonacci resistance level of 100.534 and if this level is maintained, have room to move higher until reaching the 100 - day Moving Average, roughly 45bp above present levels. Continue Floating.