Morning Report - a tale of two real estate indices

Vital Statistics:

	Last	Change	Percent
S&P Futures	1904.4	7.5	0.40%
Eurostoxx Index	3241.0	0.6	0.02%
Oil (WTI)	104.3	0.0	-0.04%
LIBOR	0.23	0.001	0.22%
US Dollar Index (DXY)	80.33	-0.065	-0.08%
10 Year Govt Bond Yield	2.54%	0.01%
Current Coupon Ginnie Mae TBA	106.4	0.0
Current Coupon Fannie Mae TBA	105.5	0.0
BankRate 30 Year Fixed Rate Mortgage	4.16

Markets are higher this morning after some good economic data. Bonds are surprisingly up. 

Durable Goods orders rose .8% in April and March was revised upward from 2.6% to 3.6%. The Street was looking for a drop of .7%. That said, ex-defense orders were down .8%. Ex-transportation, durable goods orders were up .1%. 

In other data, the Markit Purchasing Managers Index came in at 58.6, a strong number. Consumer Confidence rose to 83 in May, and the Richmond Fed Manufacturing Index was flat at 7. I think we got more economic data this morning than we got all of last week.

We have a couple of real estate indices this morning as well. The first is the FHFA Home Price Index, which rose .7% in March. According to FHFA, prices are back to July 2015 levels and we are within about 6% of the previous peak. We have a tremendous dispersion of strength between regions, where the Pacific division is up 18% over the past 5 years, while New England is down a couple of percent. 

The Case-Shiller index rose 1.24% for March. Prices are back to mid-2004 levels, according to the index, and are still about 20% off their peak in 2006.

So, according to FHFA, we are within 6% of the peak and prices are at mid 2005 levels and according to Case-Shiller, we are within 20% of the peak and prices are at mid 2004 levels. Who is right? The answer is both. Case-Shiller is a broad-based index, while FHFA is narrower. The FHFA index only looks at homes with a conforming mortgage, which means it excludes jumbos and cash sales, which have been historically distressed properties, although that is changing.

Mohammed El-Arian weighs in on what is going on in the bond market. Speculators are net short Treasuries in a big way, and pension funds are redeploying stock market gains into the bond market. That makes for a tight market. You could almost feel the stops getting triggered a couple of weeks ago when we broke out of our 2.6% - 2.8% trading range:

Always-thoughtful Gary Shilling talks about how a financial crisis in China could be the catalyst for a massive "risk-off" trade, which would mean the rally in bonds could last longer than people think. Note that mortgage REITs (one of the biggest investors in mortgage backed securities) are leaning that way.