Morning Report - Existing Home Sales

Vital Statistics:

	Last	Change	Percent
S&P Futures	1954.0	0.8	0.04%
Eurostoxx Index	3291.2	-11.1	-0.34%
Oil (WTI)	106.6	-0.2	-0.22%
LIBOR	0.233	0.002	0.87%
US Dollar Index (DXY)	80.32	-0.050	-0.06%
10 Year Govt Bond Yield	2.59%	-0.02%
Current Coupon Ginnie Mae TBA	106.5	0.2
Current Coupon Fannie Mae TBA	105.8	0.0
BankRate 30 Year Fixed Rate Mortgage	4.22

Markets are flat this morning on no real news. Bonds and MBS are up.

We have some important housing-related economic news this week, with existing home sales today, Case-Shiller and FHFA home price indices tomorrow. We will also get new home sales tomorrow. We also have some big macro numbers, with personal income and personal spending, and the third revision to Q1 GDP. 

The Chicago Fed National Activity Index came in at .21, more or less in line with expectations. The Markit US Manufacturing PMI also improved. 

Existing Home Sales rose to 4.89 million in May from an upward-revised 4.66 million in April, according to the National Association of Realtors. This is up 5% on a sequential basis, but down 5% on an annual basis. Total inventory rose 2.2% to 2.28 million homes which represents a 5.6 month inventory (6 months is considered a "balanced" level). The median home price rose to 213,400 which is up 5.1% on an annual basis. Distressed sales were 11%, down from 18% a year ago. The first time homebuyer continues to be MIA, with only 27% of sales going to first-time buyers. All cash sales were 33%, and median time on market was 47 days. 

In Yellen We Trust. The bond market is assigning a 100% probability to the idea that the Fed will be able to prevent inflation from rising over 2%. Last week's spike in CPI caused bonds to sell off for a day, and then Yellen dismissed the report as "noisy." The thing is, you already have decent inflation at the commodity price level. The thing that is holding back full-blown inflation is wages. Bond investors should watch wage growth like a hawk, and once you start seeing evidence of wage inflation it is time to grab your coat and start heading for the exit. 

Speaking of bonds, the SEC is looking into why technology has reduced trading costs for stocks, but not really for bonds. Of course bonds are not stocks, and it is a dealer-driven market. That said, it looks like dealers are going to be forced to reveal more information about their order book.