As noted in the morning alert below, the crux of this morning's weakness is attributable to ECB Pres Mario Draghi, who said that the ECB will do "whatever it takes to preserve the Euro, and believe me, it will be enough" before domestic markets opened. This represents an evolution in rhetoric for Draghi and even if details are lacking, an incrementally more aggressive ECB is one component that would help sooth the Euro-zone-driven flight to safety. It's a testament to just how skeptical markets remain that we've only lost as much ground as we have this morning. 10yr yields and MBS remain inside their weakest levels of the week, but have been toeing the line in a more volatile fashion than normal and ostensibly struggling to not lose additional ground.
MBS Pricing Snapshot
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Pricing as of 11:09 AM EST
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
ECON: Pending Home Sales Decline 1.4 Percent Vs +0.2 Consensus
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.”
Freddie Mac: 30-Year Fixed Averages Record-Breaking 3.49%
-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
Freddie Mac Volume Summary - June 2012 Highlights
-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.
Draghi Kicks Off Weakness Early This Morning, Data Reignites It
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:"
ECON: Durable Goods Higher Than Expected On Aircraft
- 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 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 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
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.
ECON: Jobless Claims Lower Than Expected, DOL Cites Volatility
- 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.
Live Chat Featured Comments
Brent Borcherding : "Part of the lesser attraction of home "ownership" is that it has become home debt. It looks less attractive when you owe more than a home is worth, and you have a 30 year for 6 years and refi into another 30 year mortgage ensuring you'll be paying debt for your entire working adult life. People want to OWN their homes and always will, we're at the beginning of a new financial mindset..."
Andy Pada : "nope, perhaps one may even call the investor purchase demand a pyrrhic victory."
Matt Hodges : "every housing recession has come out with investors and FTHB"
Matthew Graham : "seems like there are a lot of issues with that."
Brett Boyke : "notice his choice of words - investment vs. decision"
Matthew Graham : "can we rely on N/O/O demand to "save" housing though?"
Brett Boyke : "I had a past client of mine tell me the other day that buying his house was the worst investment he has ever made. "
Matt Hodges : "that being said, investors will like real estate - see Oracle of Omaha's views. If we could get back to 10 units financed...."
Andy Pada : "we cannot assume it will change back to a "good investment" belief."
Andy Pada : "I think our points are well taken, "we have no idea what it will look like.""
Brett Boyke : "I think the perception of a home being a good investment has been forever changed. That will take some time to change"
Matthew Graham : "we have no idea what it will look like."
Matthew Graham : "yeah AP. you be speculatin' !"
Matt Hodges : "that's a whole different ball o' wax, ap"
Andy Pada : "how about this 5% unemployment but not Fannie, Freddie, reduced role of FHA and elimination of mortgage interest tax deduction."
Matthew Graham : "Yeah, I think 5% U/E has other connotations for VB, as it does for me."
Matthew Graham : "naturally, I think you have to have some price stability and underlying confidence in whatever "real estate" means to the masses."
Andy Pada : "well, VB did offer a 5% unemployment = housing demand."
Matt Hodges : "correct, MG. but without jobs, we'll be hamster wheeling refis"
Matthew Graham : "to reiterate, I don't think anyone yesterday was saying it was an absolute, one ingredient "if/then.""
Andy Pada : "ha! I'm all for job growth. I'm just not a disciple of job growth = housing demand in this new world we live in."
Matthew Graham : "don't say that around AP!"
Matt Hodges : "we need job growth period"
Matt Hodges : "it would only be temporarily good in terms of refis"
Matt Hodges : "on the contrary, 1% would be bad for us"
Brett Boyke : "I know that 1% would be good for us Hodgy, but that potends something has hit the fan if that happens"
Matt Hodges : "that's why an analyst from HSBC was calling for a race between UK and US to 1% on the 10yr"
Brett Boyke : " it feels to me like the market is just waiting right now for something to trigger a move "
Matt Hodges : "i think it's just that - market response might be immediate, but fleeting. Substantive resolution is not on the horizon"
Andy Pada : "I am more interested in market response than substantive resolution...the thought was that Draghi says the same thing over and over. It seems there has been a change which would warrant the market response"
Matthew Graham : "that's what I was trying to address (perhaps inadequately) with the paragraph: "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. ""
Matthew Graham : "in a word, yes. "
Andy Pada : "Has Draghi's statements in the past been different from his current statement?"
John McClellan : "Not here in Austin"
Brent Borcherding : "Definitely slowed."
Matthew Graham : "from what I've gathered, yes B-C"
Matt Hodges : "yes, last 6 weeks have been slow"
B-C : "Everyone seeing a slowdown in purchase business?"
Matt Hodges : "irresponsible by u/w to discriminate against S/E"
John McClellan : "Matt - agreed"
Matt Hodges : "bad u/w"
Matt Hodges : "that scenario is approvable, Edie"
John McClellan : "sorry Edie, not sure how long it will show - i would look around for a more senseable UW who is willing to over turn"
Edie Clark : "No--great credit with reserves...issue with other lender is parents helping daughter purchase home..so daughter is occupant co-bwr, one of the parents is Self-Employed...the Lender said layering of risk and high ratios."
Matt Hodges : "perfectly acceptable ratios - guessing credit was low?"
Edie Clark : "Matt-original dti 15/49 now 11/45"
Matt Hodges : "what were the ratios?"
Edie Clark : "B-C, John: yes, different property, new Case #, M&T says their policy to pass on loans with prior rejects regardless. Do you know how long the other Reject Case will reflect on future Case# Assignments?"
John McClellan : "edie - FHA denial- no time limite...just have to justify to UW why it should be approved...new UW open to questioning "
B-C : "new property new Cse# i believe?"