Home Sales Drop Again, but Supply Still Hurting MBS

Pending Home Sales dropped yet again, this time by 1.9%.  This brings us to the lowest reading since this index was created in 2001.  Taken in and of itself, that's pretty stark, but consider we haven't had any sort of significant housing slump since that time, so the fact that the index is at an all time low, while still significant, is perhaps not surprising.

Since the original posting, prices are down about 5/32nds.

There really isn't any economic data driving this.  The dow is down about 40 points.  The 10 year treasury is improving.  Earnings reports have been tepid if not outright weak since the closing bell yesterday.  So why can't we get any love?  In a word, supply.  There are simply more firms selling pools of loans into the MBS market than there are firms who are buying.  The excess supply forces sellers to lower prices to get opportunists on board.  So we see the curve fall rather rapidly and then get picked up a tick or two by those bottom feeders, then fall again, and the cycle repeats.  

Additionally, the market is waiting the release of the FOMC minutes which will occur in approximately two hours.  Depending on the strength of the verbiage, we could see a major shift.  Stay tuned for an update at that time.