MBS MID-DAY: 1/26/2012

Remodeling sentiment rose to the highest level in five years, according to the National Association of Home Builders' (NAHB) Remodeling Market Index (RMI) for the fourth quarter of 2011. Released today, the RMI increased to 46.6 in the fourth quarter from 41.7 in the third quarter.

In the fourth quarter, the RMI component measuring current market conditions rose to 48.4 from 43.0 in the previous quarter. The RMI component measuring future indicators of remodeling business was also positive, increasing to 44.8 from 40.4 in the previous quarter.

An RMI below 50 indicates that more remodelers report market activity is lower (compared to the prior quarter) than report it is higher. The overall RMI averages ratings of current remodeling activity with indicators of future activity.

"As more consumers remain in their homes rather than move in this economy, remodelers benefited from a gradual increase in home improvement activity, taking us to a five-year high," said NAHB Remodelers Chairman Bob Peterson, CGR, CAPS, CGP, a remodeler from Ft. Collins, Colo. "2011 ended on a strong note for the remodeling industry."

-30-year fixed-rate mortgage (FRM) averaged 3.98 percent with an average 0.7 point for the week ending January 26, 2012, up from last week when it averaged 3.88 percent. Last year at this time, the 30-year FRM averaged 4.80 percent.

-15-year FRM this week averaged 3.24 percent with an average 0.8 point, up from last week when it averaged 3.17 percent. A year ago at this time, the 15-year FRM averaged 4.09 percent.

-5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.85 percent this week, with an average 0.7 point, up from last week when it averaged 2.82 percent. A year ago, the 5-year ARM averaged 3.70 percent.

-1-year Treasury-indexed ARM averaged 2.74 percent this week with an average 0.6 point, matching last week when it averaged 2.74 percent. At this time last year, the 1-year ARM averaged 3.26 percent.

Sales of new single-family houses in December 2011 were at a seasonally adjusted annual rate of 307,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.2 percent (±13.2%)* below the revised November rate of 314,000 and is 7.3 percent (±16.6%)* below the December 2010 estimate of 331000.

The median sales price of new houses sold in December 2011 was $210,300; the average sales price was $266,000. The seasonally adjusted estimate of new houses for sale at the end of December was 157,000. This represents a supply of 6.1 months at the current sales rate. An estimated 302000 new homes were sold in 2011. This is 6.2 percent (±3.6%) below the 2010 figure of 323,000.

Sales of new single-family houses in December 2011 were at a seasonally adjusted annual rate of 307,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.2 percent (±13.2%)* below the revised November rate of 314,000 and is 7.3 percent (±16.6%)* below the December 2010 estimate of 331000.

The median sales price of new houses sold in December 2011 was $210,300; the average sales price was $266,000. The seasonally adjusted estimate of new houses for sale at the end of December was 157,000. This represents a supply of 6.1 months at the current sales rate. An estimated 302000 new homes were sold in 2011. This is 6.2 percent (±3.6%) below the 2010 figure of 323,000.

As expected, this morning's economic data would have had to have been far outside the realm of estimates in order to have much of an impact on a market that is still following through on yesterday's FOMC Announcement bullishness. Jobless Claims and the Chi-Fed Index rose in line with expectations, but Durable Goods posted a 3.0 vs 2.0% beat. The blip of volume that followed the reports took yields momentarily higher and MBS perhaps 1/32nd lower, but not for long.

10yr yields are back to 1.968 after getting close to 1.98 and Fannie 3.5 MBS are up to 103-09, 3 ticks higher since the econ data and 8 ticks higher on the day. Stocks haven't done much of anything following the reports although futures are at their morning highs (just over 1326 S&P).

Led by improvements in production- and employment-related indicators, the Chicago Fed National Activity Index increased to +0.17 in December from –0.46 in November. Two of the four broad categories of indicators that make up the index improved from November, and only the consumption and housing category’s contribution remained negative in December.

The index’s three-month moving average, CFNAI-MA3, increased from –0.19 in November to –0.08 in December—its highest value since March 2011. December’s CFNAI-MA3 suggests that growth in national economic activity was slightly below its historical trend. The economic slack reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.

The contribution from production-related indicators to the index rose sharply to +0.24 in December from –0.28 in November. Industrial production increased 0.4 percent in December after edging down 0.3 percent in the previous month. Similarly, manufacturing production rose by 0.9 percent in December after declining by 0.4 percent in November, and manufacturing capacity utilization increased to 75.9 percent in December from 75.3 percent in the previous month.

• RTRS - DURABLES ORDERS +3.0 PCT (CONS. +2.0 PCT) VS NOV +4.3 PCT (PREV +3.7 PCT)
• RTRS - DURABLES EX-TRANSPORTATION +2.1 PCT (CONS +0.7 PCT) VS NOV +0.5 PCT (PREV +0.3 PCT)
• RTRS - DURABLES EX-DEFENSE +3.5 PCT VS NOV +4.6 PCT (PREV +3.7 PCT)
• RTRS - NONDEFENSE CAP ORDERS EX-AIRCRAFT +2.9 PCT (CONS +1.0 PCT) VS NOV -1.2 PCT (PREV -1.2 PCT)
• RTRS - GEN. MACHINERY +6.0 PCT, ELECTRICAL EQUIPMENT -1.1 PCT, DEFENSE AIRCRAFT/PARTS -6.8 PCT
• RTRS - DURABLES EX-TRANSPORTATION ORDERS RISE LARGEST SINCE MARCH 2011 (+2.6 PCT)

In the week ending January 21, the advance figure for seasonally adjusted initial claims was 377,000, an increase of 21,000 from the previous week's revised figure of 356,000. The 4-week moving average was 377,500, a decrease of 2,500 from the previous week's revised average of 380,000.

The advance seasonally adjusted insured unemployment rate was 2.8 percent for the week ending January 14, an increase of 0.1 percentage point from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending January 14, was 3,554,000, an increase of 88,000 from the preceding week's revised level of 3,466,000. The 4-week moving average was 3,569,000, a decrease of 15,750 from the preceding week's revised average of 3,584,750.