MBS Pricing Snapshot

Pending home sales declined in June but marked 14 consecutive months of year-over-year gains, according to the National Association of Realtors®

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, slipped 1.4 percent to 99.3 in June from a downwardly revised 100.7 in May but is 9.5 percent higher than June 2011 when it was 90.7. The data reflect contracts but not closings.

Lawrence Yun, NAR chief economist, said inventory shortages are a factor. “Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities,” Yun said. “We’ve been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors.”

According to the Realtors® Confidence Index, the buyer traffic index stood at 60 in June while the seller index was 41, which shows a large imbalance between buyer and seller interest. A value of 50 implies neutral market conditions; the disparity between buyers and sellers began to grow in early spring and has been in a particularly large imbalance for the past two months.

“Any bank-owned properties that have been held back in markets with inventory shortages should be released expeditiously to help meet market demand,” Yun said. “Housing starts will likely need to double over the next two years to satisfy the pent-up demand for both rentals and ownership.”

-30-year fixed-rate mortgage (FRM) averaged 3.49 percent with an average 0.7 point for the week ending July 26, 2012, down from last week when it averaged 3.53 percent. Last year at this time, the 30-year FRM averaged 4.55 percent.

-15-year FRM this week averaged 2.80 percent with an average 0.7 point, down from last week when it averaged 2.83 percent. A year ago at this time, the 15-year FRM averaged 3.66 percent.

-5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.74 percent this week with an average 0.6 point, up from last week when it averaged 2.69 percent. A year ago, the 5-year ARM averaged 3.25 percent.

-1-year Treasury-indexed ARM averaged 2.71 percent this week with an average 0.5 point, up from last week when it averaged 2.69 percent. At this time last year, the 1-year ARM averaged 2.95 percent.

-The total mortgage portfolio decreased at an annualized rate of 2.5% in June.

-Total single-family purchases and guarantee volume in June includes an increase of $8 billion in HARP loans. Single-family refinance-loan purchase and guarantee volume was $31.0 billion in June, representing 70% of total mortgage portfolio purchases and issuances.

-Total number of loan modifications were 6,597 in June 2012 and 28,819 for the six months ended June 30, 2012.

-The aggregate unpaid principal balance (UPB) of our mortgage-related investments portfolio decreased by approximately $10.7 billion in June.

-Freddie Mac mortgage-related securities and other guarantee commitments increased at an annualized rate of 2.8% in June.

-Our single-family seriously delinquent rate decreased from 3.50% in May to 3.45% in June. Our multifamily delinquency rate increased from 0.26% in May to 0.27% in June.

-The measure of our exposure to changes in portfolio market value (PMVS-L) averaged $115 million in June. Duration gap averaged 0 months.

-On September 6, 2008, the Director of the Federal Housing Finance Agency (FHFA) appointed FHFA as Conservator of Freddie Mac.

The overnight session was a simple one with a hopelessly sideways drift in low volume, well-contained by yesterday's trading range until ECB Pres Mario Draghi hit the wires around 6am. Here are some of the highlights:

RTRS - DRAGHI SAYS EURO AREA MUCH STRONGER THAN PEOPLE ACKNOWLEDGE TODAY

RTRS - PROGRESS HAS BEEN EXTRAORDINARY IN LAST SIX MONTHS

RTRS - LAST SUMMIT WAS REAL SUCCESS BECAUSE LEADERS SAID ONLY WAY OUT OF CRISIS IS MORE EUROPE

RTRS- ECB'S DRAGHI SAYS WE THINK EURO IS IRREVERSIBLE

RTRS- ECB'S DRAGHI SAYS WITHIN OUR MANDATE ECB READY TO DO WHATEVER IT TAKES TO PRESERVE THE EURO

The last bullet is particularly interesting as Draghi himself has often cited the ECBs mandate from the Euro zone as distinctly limiting the scope of the ECB's crisis response. Indeed, this inability--and at times stubborn unwillingness--to do more may be one of the central components to investor frustration with the overall Euro zone crisis.

10yr yields moved up 4bps immediately following those comments and are no higher now after generally healthy economic data. That said, the economic data did cause another spike in yields (and weakness in MBS) that brought things back to their post-Draghi levels.

But despite that weakness, bond markets have held their ground fairly well after better-than-expected Jobless Claims and significantly better-than-expected Durable Goods figures. 10yr yields hit 1.44 after Draghi, had fallen to 1.41 at the domestic open, and rose again to 1.445 after the economic data. They're currently just under 1.43 while production MBS are down 5 ticks at 104-02, but well off 103-31 lows. We noted the possibility of a renewed connection to economic data ahead of next week's FOMC meeting in "The Day Ahead:"

- Durables up 1.6pct vs +0.4 pct consensus
- excluding transportation down 1.1pct, most since January
- excluding aircraft/defense, down 1.4 pct vs +0.6 consensus
- defense/aircraft +23.9 pct

New Orders

New orders for manufactured durable goods in June increased $3.4 billion or 1.6 percent to $221.6 billion, the U.S. Census Bureau announced today. This increase, up two consecutive months, followed a 1.6 percent May increase. Excluding transportation, new orders decreased 1.1 percent. Excluding defense, new orders decreased 0.7 percent.

Transportation equipment, up four of the last five months, had the largest increase, $5.1 billion or 8.0 percent to $68.8 billion.

Shipments

Shipments of manufactured durable goods in June, up six of the last seven months, increased $0.2 billion or 0.1 percent to $225.4 billion. This followed a 1.2 percent May increase.

Machinery, up four of the last five months, had the largest increase, $1.0 billion or 3.1 percent to $32.9 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 1.2 percent May increase.

- claims fall to 353k vs 380k consensus
- DOL cites volatility due to plant shut-downs

In the week ending July 21, the advance figure for seasonally adjusted initial claims was 353,000, a decrease of 35,000 from the previous week's revised figure of 388,000. The 4-week moving average was 367,250, a decrease of 8,750 from the previous week's revised average of 376,000.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending July 14, unchanged from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending July 14 was 3,287,000, a decrease of 30,000 from the preceding week's revised level of 3,317,000. The 4-week moving average was 3,309,000, a decrease of 3,750 from the preceding week's revised average of 3,312,750.