MBS MID-DAY: Waking Up To Find It Wasn't A Dream After All

MBS Pricing Snapshot

U.S. house prices rose 1.8 percent from the first quarter to the second quarter of 2012 according to the Federal Housing Finance Agency’s (FHFA) seasonally adjusted purchase-only house price index (HPI). The HPI is calculated using home sales price information from Fannie Mae and Freddie Mac mortgages. Seasonally adjusted house prices rose 3.0 percent from the second quarter of 2011 to the second quarter of 2012. FHFA’s seasonally adjusted monthly index for June was up 0.7 percent from May.

“Although some housing markets are still facing significant challenges, house prices were quite strong in most areas in the second quarter,” said FHFA Principal Economist Andrew Leventis. “The strong appreciation may partially reflect fewer homes sold in distress, but declining mortgage rates and a modest supply of homes available for sale likely account for most of the price increase.”

* 372k annual rate vs 365k consensus
* +3.6 pct vs upwardly revised -3.5 pct in June, previously -8.4
* That upward revision of the previous cycle is probably more significant than the moderate beat on today's headline, but bond markets aren't doing much with it so far.


Sales of new single-family houses in July 2012 were at a seasonally adjusted annual rate of 372,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.6 percent (±14.1%)* above the revised June rate of 359,000 and is 25.3 percent (±18.2%) above the July 2011 estimate of 297,000.

The median sales price of new houses sold in July 2012 was $224,200; the average sales price was $263,200. The seasonally adjusted estimate of new houses for sale at the end of July was 142,000. This represents a supply of 4.6 months at the current sales rate.

30-year fixed-rate mortgage (FRM) averaged 3.66 percent with an average 0.7 point for the week ending August 23, 2012, up from last week when it averaged 3.62 percent. Last year at this time, the 30-year FRM averaged 4.22 percent.

15-year FRM this week averaged 2.89 percent with an average 0.7 point, up from last week when it averaged 2.88 percent. A year ago at this time, the 15-year FRM averaged 3.44 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.80 percent this week with an average 0.6 point, up from last week when it averaged 2.76 percent. A year ago, the 5-year ARM averaged 3.07 percent.

1-year Treasury-indexed ARM averaged 2.66 percent this week with an average 0.4 point, down from last week when it averaged 2.69 percent. At this time last year, the 1-year ARM averaged 2.93 percent

* Slight rise in the headline PMI index but third- lowest reading in 35 months

*ƒ Growth of output and new orders remain modest

ƒ* Employment increases at slowest pace since December 2010

ƒ * Marginal falls in input and output prices

The Markit Flash U.S. Manufacturing Purchasing Managers’ Index continued to signal only a modest improvement in U.S. manufacturing business conditions in August. The preliminary ‘flash’ PMI reading which is based on around 85% of usual monthly replies rose slightly from 51.4 in July to 51.9 and was the third-lowest since the manufacturing recovery was first indicated by the headline index in October 2009.

PMI index readings above 50.0 signal an increase or improvement on the prior month, while readings below 50.0 indicate a decrease. Manufacturing production rose further in August, taking the current sequence of growth to 35 months. Although having strengthened since July, the latest expansion was only modest and the second-weakest in over a year.

10yr yields were mostly flat to slightly higher in the first part of the overnight session, but Europe were buyers when they got in for the day, taking yields briefly under 1.68. Pretty hefty technical resistance there and it made good enough sense to not see it casually broken overnight. Still, the resulting drift higher was greatly mitigated by two factors:

A) It only saw yields move as high as 1.707, and
B) Jobless Claims were slightly bond-market-positive

All told, we're back under 1.692 currently, roughly unchanged from 5pm levels and slightly improved from the official 3pm Treasury close. MBS are also unchanged from 5pm levels and haven't moved much this morning, with Fannie 3.0s at 103-06 and 3.5s at 105-16.

Claims did more to hurt stocks than to help bonds, but that's OK. We weren't expecting an impact in light of yesterday's more significant bond market motivation. Next up is Markit PMI at 8:58

* Claims 372k vs 365k consensus
* 4-week average up to 368k from 365.25k
* Continued Claims up to 3.317 mln vs 3.30 mln conensus

In the week ending August 18, the advance figure for seasonally adjusted initial claims was 372,000, an increase of 4,000 from the previous week's revised figure of 368,000. The 4-week moving average was 368,000, an increase of 3,750 from the previous week's revised average of 364,250.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending August 11, unchanged from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending August 11, was 3,317,000, an increase of 4,000 from the preceding week's revised level of 3,313,000. The 4-week moving average was 3,311,500, an increase of 6,500 from the preceding week's revised average of 3,305,000.