MBS MID-DAY: Soberingly Weak Housing Data Propels Rally
By:
Matthew Graham
•
MBS Live: MBS Morning Market Summary
While there was a normal amount of overnight trading and volatility, none of it really matters considering bond markets were near unchanged levels when it came time for New Home Sales and that New Home Sales utterly tanked. For those of us scratching our heads, wondering how long it would be before rising rates took a legitimate toll on Housing data, today is our day. Granted, it's not good new for the industry that fewer homes are being sold, but the worse news has been how fast rates have risen. New Home Sales coming in 20% lower than expected (394k vs 490k) is the first major misstep in the housing recovery since we began rising from the "bouncing along the bottom" days that characterized 2010 and most of 2011. Fannie 4.0s are up almost half a point since then. 10yr yields are down almost 8bps to 2.81. Most lenders have repriced positively. The seeds of consolidation between now and September 6th NFP are officially sown.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
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Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.
10:20AM :
ALERT ISSUED:
Strong Rally Following Home Sales Data
Both MBS and Treasuries are rallying smartly following a much weaker than expected New Home Sales report. Fannie 4.0s are up 7 ticks on the day at 102-13 and 10yr yields are down nearly 4bps at 2.855. They had been at 2.90 before the data.
Positive reprice potential depends on the lender, with those releasing rates before or right at 10am being the most likely contingent. Others will have had an opportunity to digest more of the rally before putting out initial rates.
Whatever the case, though the data is bad for the housing industry, it's good for interest rates today.
Positive reprice potential depends on the lender, with those releasing rates before or right at 10am being the most likely contingent. Others will have had an opportunity to digest more of the rally before putting out initial rates.
Whatever the case, though the data is bad for the housing industry, it's good for interest rates today.
10:13AM :
ECON: New Home Sales MUCH Weaker Than Expected
- Sales 394k vs 490k forecast, lowest since Oct 2012
- 13.4 pct decline is biggest since May 2010
- Supply rose from 4.3 to 5.2 months
- Previous month revised from 497k to 455k
- Market Reaction: Sharp rallies in TSYs and MBS. This was a very big miss.
Sales of new single-family houses in July 2013 were at a seasonally adjusted annual rate of 394,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.
This is 13.4 percent (±14.5%)* below the revised June rate of 455,000, but is 6.8 percent (±18.6%)* above the July 2012 estimate of 369,000. The median sales price of new houses sold in July 2013 was $257,200; the average sales price was $322,700. The seasonally adjusted estimate of new houses for sale at the end of July was 171,000. This represents a supply of 5.2 months at the current sales rate.
- 13.4 pct decline is biggest since May 2010
- Supply rose from 4.3 to 5.2 months
- Previous month revised from 497k to 455k
- Market Reaction: Sharp rallies in TSYs and MBS. This was a very big miss.
Sales of new single-family houses in July 2013 were at a seasonally adjusted annual rate of 394,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.
This is 13.4 percent (±14.5%)* below the revised June rate of 455,000, but is 6.8 percent (±18.6%)* above the July 2012 estimate of 369,000. The median sales price of new houses sold in July 2013 was $257,200; the average sales price was $322,700. The seasonally adjusted estimate of new houses for sale at the end of July was 171,000. This represents a supply of 5.2 months at the current sales rate.
9:09AM :
MBS, Treasuries Turn Green As Domestic Trading Picks up
The overnight session was fairly uneventful, even if slightly weaker for Treasuries. Most of the night saw a narrow range between 2.9 and 2.883 with yields moving quickly higher to 2.92 into domestic hours.
That weakness was met with good support thanks to a one-two-(and maybe three) punch from buyers at the CME Open and comments from Fed's Bullard that the Fed doesn't need to be in a hurry to taper in Sept. The third possible punch is simply the supportive buying that kept yields in check even before the two more salient factors.
In other words, yields had already topped out at 7:40am, but were heading sideways and possibly back to highs if not for Bullard and CME buying.
MBS hit the 8am mark in weaker territory vs yesterday and have traced the rally in Treasuries so far. Fannie 4.0s are now up 4 ticks on the day at 102-10. Both Treasuries and MBS are hitting resistance here (2.88 is the level for 10's current bounce). The only scheduled data is New Home Sales at 10am.
That weakness was met with good support thanks to a one-two-(and maybe three) punch from buyers at the CME Open and comments from Fed's Bullard that the Fed doesn't need to be in a hurry to taper in Sept. The third possible punch is simply the supportive buying that kept yields in check even before the two more salient factors.
In other words, yields had already topped out at 7:40am, but were heading sideways and possibly back to highs if not for Bullard and CME buying.
MBS hit the 8am mark in weaker territory vs yesterday and have traced the rally in Treasuries so far. Fannie 4.0s are now up 4 ticks on the day at 102-10. Both Treasuries and MBS are hitting resistance here (2.88 is the level for 10's current bounce). The only scheduled data is New Home Sales at 10am.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.
Brent Borcherding : "JT--Good points, but they may have had a very clear handle on how fragile the housing recovery is and that low rates were a huge portion of the cause but TOTALLY underestimated the size of the move. If the move had been from 1.6 to somewhere between 2 and 2.5, say 2.25 rates would have remained at or near 4%. That may not have as big an effect on housing."
Victor Burek : "yep, about 6 months too early, should have allowed housing to continue strong through the summer"
Andrew Horowitz : "Ben has done a great job, up until his premature Taper talk, i do believe that the economy was recovering built on the back of the stronger housing sector and the backs that you all provided via refinancing and helping, by talking the taper talk to early all that has been built up over years could be torn down in months"
John Tassios : "I understand why the FED wanted to say dial back on QE3, to prevent assets bubbles, but I think FED greatly underestimated how delicate the home recovery was and how important sub 4% rates were to bring buyers back into the market t obuy again. The overall psychology for home ownership was greatly damaged the past 4 years, and the only way to get buyers back in was low rates below 4% that were too good to pass up. with rapid run-up in rates biggest incentive to buy homes is gone"
Jeff Anderson : "2.82 been a tough nut to crack lately. I wouldn't get the party hats until we get through that. Or is there another pivot you guys are watching?"
Edgar : "VB-I think that survey by the NY Fed will way on the decision. Banks expect it and it would not surprise me to see the Fed follow even if the data shows the economy is slowing."
Gus Floropoulos : "Ed is right....the sooner the better, and if we r right and the Fed is wrong in timing, welcome back low rates"
Amitab Mukerjee : "VB: but until taper, numbers will be stupid, so I hope for a sooner taper"
Edgar : "bring on the taper Amitab. Sooner the better"
Andy Pada : "except that Fed speakers have been opining that there is not enough data to see if higher interest rates will affect housing. "
Matt Hodges : "MG's point is well taken.... i just wish the fed would point out the weak employment, vis a vis PT growth, emergency UE bennies and discouraged"
Edgar : "I think a few Fed guys says higher rates wont hurt housing. So much money spent on that Phd. Too bad a common sense class was not part of the curriculum"
Brent Borcherding : "Sure, MG, but is that really possible? I mean, bad housing data is definitely going to have a negative effect on labor markets. That housing frothiness they don't like just happens to correspond with the labor market improvements, just happens to, of course."
Gus Floropoulos : "they may want to a leveling off here"
Gus Floropoulos : "Fed would probably like to see housing not jump as it has in recent months....preventing a future problem"
Amitab Mukerjee : "MG: good point. Look, there's no bubble. just good growth."
Amitab Mukerjee : "Thing is, I don't think the Fed cares."
Matthew Graham : "keep in mind the Fed only cares about Housing data inasmuch as it affects labor markets. If labor markets do OK with crappy housing data, they'd actually prefer that so they don't have to worry about housing frothiness"
Andy Pada : "lockhart said in in his interview that it is too early to see how interest rates will affect housing. Does this number give him the data?"
Brent Borcherding : "Wait 'til August numbers hit...yikes."
Brent Borcherding : "20% under consensus, big miss."
Oliver Orlicki : "thought rates werent hurting the market?"
Matthew Graham : "this is a huge miss"
Victor Burek : "and a pretty good revision lower on prior month"
Brent Borcherding : "It's like some of us knuckleheads on the street know what we're talking about."
Matthew Graham : "RTRS - US JULY NEW HOME SUPPLY 5.2 MONTHS' WORTH AT CURRENT PACE VS JUNE 4.3 MONTHS "
Matthew Graham : "RTRS- US JULY HOME SALES NORTHEAST -5.7 PCT, MIDWEST -12.9 PCT, SOUTH -13.4 PCT, WEST -16.1 PCT "
Matthew Graham : "RTRS- US JULY SINGLE-FAMILY HOME SALES -13.4 PCT, BIGGEST DECLINE SINCE MAY 2010, VS JUNE +3.6 PCT (PREV +8.3 PCT) "
Victor Burek : "good to see that higher rates are not impacting home sales"
Matthew Graham : "RTRS- US JULY SINGLE-FAMILY HOME SALES 394,000 UNIT ANN. RATE, LOWEST SINCE OCT 2012, (CONS 490,000) VS JUNE 455,000 (PREV 497,000) "
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