| Last | Change | Percent | |
| S&P Futures | 1872.0 | -1.9 | -0.10% |
| Eurostoxx Index | 3191.5 | -8.2 | -0.26% |
| Oil (WTI) | 101.6 | -0.2 | -0.19% |
| LIBOR | 0.229 | 0.000 | 0.07% |
| US Dollar Index (DXY) | 79.76 | -0.150 | -0.19% |
| 10 Year Govt Bond Yield | 2.70% | -0.01% | |
| Current Coupon Ginnie Mae TBA | 105.2 | 0.1 | |
| Current Coupon Fannie Mae TBA | 104.2 | 0.1 | |
| RPX Composite Real Estate Index | 200.7 | -0.2 | |
| BankRate 30 Year Fixed Rate Mortgage | 4.28 |
Markets are lower this morning as earnings reports continue to pile in. So far, it is looking like most companies are meeting or beating estimates. Bonds and MBS are up.
The Markit US Manufacturing PMI slipped in April. It seems like big revisions have been the order of the day lately, so I wouldn't fall out of my chair with shock if that preliminary number was revised upward. Like I said before, this could be the year that "recovery summer" stops being a running joke.
That said, new home sales came in at 384k, well below the last month's 450k pace. Abysmal, abysmal number. The XHB (homebuilder ETF) is getting slammed right now. You can't blame this one on the weather. Maybe the builders, who have been increasing home size and prices, have finally hit the point where the consumer is saying "uncle." Shortages of buildable lots and skilled labor continue to be an issue.
Mortgage applications fell 3.3% last week (unsurprising as it was a short week). Both purchases and refis fell. Refi percent fell to 51.3%, and we are seeing ARMs increase - up to 8.5% of all loans.
Hatteras (a mortgage REIT that specializes in ARMs) reported that its leverage ratio increased. ARMs have always been on the illiquid side to begin with, but it looks like they increased their dollar roll position, which put even more pressure on front month TBAs. TBAs (To-Be-Announced) are generic mortgage backed securities, and their price in the market is the starting point of a rate sheet. So if TBAs are in demand, mortgage rates are falling, and if they are out of favor, mortgage rates are rising. In this case, Hatteras has been selling the front-month TBAs and buying the out-month TBAs. So this puts pressure on the front month TBA, which means ARM rates are slightly higher than they otherwise would be. Of course this trade has to be reversed at some point, so ARM pricing could get a bit better in the future. I realize this is kind of "inside baseball", but it is always good to keep in mind how the buyers of mortgage backed securities (the ultimate lenders here) are positioned.
In the "what passes for analysis" category these days category, the Washington Post (yes that bastion of commercial logic) opines that owning a house is a lousy investment. The author talks about how stocks are so much better over the long term (conveniently, the S&P 500 is at all-time highs, and real estate has gotten pounded over the past six years), and concludes that owning your own home is a stupid investment and you are better off renting. This is a classic case of "in the sciences, knowledge is cumulative, and in the financial markets it is cyclical." The author (who may be too young to remember) must imagine that inflation is forever vanquished, never to return again. If inflation ever comes back, stocks will get clobbered (as they did from 1965-1982 - the last secular bear market) as will bonds. But your house will go up in value with inflation, and the value of your liability (a 4% 30 year fixed mortgage) will fall. Inflation is a debtor's best friend, and the Fed is pulling out all the stops trying to create it. At some point, it will succeed. And if you rent, you get to enjoy annual rent increases. If you bought, you have locked in your monthly payment for 30 years.
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