Market Recap

 September 24, 2013

 Existing Home Sales Rise to 6 1/2 Year High:

U.S. home resales hit a 6-1/2 year high in August as buyers flocked back to the market to lock in cheap borrowing costs amid rising mortgage rates, a signal of continued strength in the housing market recovery.

The National Association of Realtors said on Thursday existing home sales increased 1.7 percent to an annual rate of 5.48 million units last month, the highest level since February 2007 when property values began to decline after the sector’s boom and bust.

Tale of the tape:

Existing Home Sales – 5.48 million unit rate – 6.5 year high

Inventory Supply – just 4.9 months, well below the six month supply level that would indicate a strong housing market.  So, this indicates a very strong market.

Median Home Price – up 14.7% to $212,100 from a year ago.

 
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Distressed Home Sales

– only 12% of sales, this is the lowest level since 2008!How long will the short drop in mortgage rates last?  It will certainly spark even more buyer interest that missed the last drop in rates.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) gained +130 basis points from last Friday’s close which caused 30 year fixed rates to move to their lowest levels in the past 30 days.

Mortgage backed securities were trading in a very narrow range until Wednesday’s Federal Reserve Open Market Committee Meeting (FOMC).

And they shocked bond traders by electing not to taper at that meeting.  While, our own internal survey showed that only 20% of over 4,000 originators polled expected a taper announcement, over 80% of bond traders and hedging operators did expect a taper announcement.

So, the fact that they made no taper announcement was unexpected by traders and a shock to the system.  As a result – MBS shot up just over +80 BPS just after the FOMC statement was released and then another +25BPS after Bernanke’s press conference.

Keep in mind that the Fed does not have to wait until their next meeting in December to take action.  The made it very clear that it is already part of their program – that they can change the size and nature of their asset purchase program ANY time that they want.  This has traders focused in on any economic news that would give the Fed enough ammunition to adjust their monthly bond purchases this year.  And this week we have some very big economic reports such as GDP, Durable Goods Orders and Consumer Confidence.  All of which will be very closely watched by trader.