Morning Report - First Time Homebuyer sighting.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1603.2	-3.4	-0.21%
Eurostoxx Index	2596.7	-23.2	-0.88%
Oil (WTI)	97.22	0.2	0.18%
LIBOR	0.273	-0.001	-0.33%
US Dollar Index (DXY)	82.83	-0.075	-0.09%
10 Year Govt Bond Yield	2.52%	0.05%
Current Coupon Ginnie Mae TBA	102.1	-0.5
Current Coupon Fannie Mae TBA	101.1	-0.4
RPX Composite Real Estate Index	205.5	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.38

Markets are down slightly on no real news. The NAPM-Milwaukee report came in better than expected. Bonds and MBS are down.

Big drop in mortgage rates yesterday. Bonds were up a bit, but this was a big move. Sounds like the pandemonium in the TBA market since last week is taking a breather. You had a period where mortgage REITs and originators were getting in each other's way trying to sell TBAs. Perhaps the Great Mortgage REIT Convexity Hedge / Deleveraging Trade is finished, at least for the moment. Ginnie I / II spreads and Fannie / Gold spreads will tell the tale.

KB Home reported earnings yesterday, and gave some background on where they see the housing sector. There were two big takeaways from the conference call.  First, the increase in interest rates is not negatively affecting demand; in fact it is creating a "sense of urgency" among buyers. This comports exactly with what Lennar said on their call earlier this week. Second (and this is big), the first time homebuyer is back. KB Home is one of the lower price points for the homebuilders and focuses on the first time and move up buyer. 60% of their business is the first time homebuyer. If this is in fact the case (and Lennar also observed the same thing) this is the last step needed for a full, robust housing recovery. 

Pending Home Sales increased 6.7% to a 6 year high, according to NAR. These are contract signings, not sales, so they reflect the increase in rates over the month of May. We are finally seeing robust growth in the West. The Northeast was flat, but grew 14% year-over-year. The West grew 16%, but was flat year-over-year. Next month's number will be very interesting because it will include the "Bernanke Scare", which is becoming the euphemism for last week's FOMC statement that scared the beejeezus out of the bond market.