Morning Report - a tale of two market segments

Vital Statistics:

	Last	Change	Percent
S&P Futures	1647.4	-4.7	-0.12%
Eurostoxx Index	2837.6	1.8	0.06%
Oil (WTI)	104.5	-062	-0.61%
LIBOR	0.264	0.001	0.34%
US Dollar Index (DXY)	81.26	0.076	0.09%
10 Year Govt Bond Yield	2.84%	0.03%
Current Coupon Ginnie Mae TBA	103.03	-0.6
Current Coupon Fannie Mae TBA	102.9	-0.3
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.56

Fed Minutes Day. The Minutes of the last FOMC meeting will be released at 2:00 pm EST, and that has the potential to move the bond markets. At the moment, bonds and MBS are down. 

Given the volatility of the bond market lately, getting it wrong means getting it VERY wrong. Probably not a good environment to roll the dice and float.

Mortgage applications fell 4.6% last week, which is not s surprise given the back-up in rates. The purchase index was actually up a percent, while the refi index (predictably) hit new lows. Refis as a percent fell to 61.5% of total number of loans.

Existing Home sales spiked to 5.39 million in July, a 6.5% increase month-over-month, and 17.2% higher than a year ago. NAR Chief Economist Lawrence Yun says that changes in affordability are beginning to affect the market. As rates rise, the pool of eligible buyers decreases. This is apparent at the low end of the market and especially with the first time homebuyer struggling with student loan debt and unable to meet the DTI requirements.

Homebuilder Toll Brothers reported third quarter earnings that missed analyst estimates, but their outlook was good. Toll is in the McMansion business, so it isn't necessarily representative of the homebuilding market as a whole. In fact, some of the builders at the lower price points - particularly Pulte and Beazer - reported a decrease in orders. They noted an increase in sales volume and pricing power, which is unsurprising since we have underbuilt for the past 10 years. 

Punch line: the haves vs the have nots.  If you are a twenty-something looking for a starter home, you are fighting professional cash-only investors for inventory, struggling to meet DTI requirements and are getting sticker shock from high interest rates. However, the luxury end of the market is doing quite well, as Toll's numbers can attest.