Morning Report: Existing home sales rise

Vital Statistics:


Last Change
S&P futures 2660 31.25
Eurostoxx index 357.65 3.68
Oil (WTI) 50.97 0.55
10 year government bond yield 3.06%
30 year fixed rate mortgage 4.89%


Stocks are higher as investors return from the Thanksgiving holiday. Bonds and MBS are down.


Oil continues to plunge, falling 8% on Friday. Saudi Arabia continues to pump over 11MM barrels a day and there are worries of a supply glut. Oil has fallen about 33% since early October. Natural gas has given back some of its gains, but is still elevated on concerns of a cold winter in the South.


Existing home sales broke its six month losing streak, rising 1.4% in October, according to NAR. Sales rose 1.4% MOM to an annualized pace of 5.22 million. This is down over 5% YOY. The median home price was $255,100, up 3.8% YOY. The inventory situation continues to improve, but remains tight. There were 1.88 million homes for sale at the end of the month, which represents a 4.3 month supply.  There were only 3.9 month’s worth of homes a year ago.


The median home price to median income ratio now stands at 4.15x, an improvement from 4.4x, where it ended 2017. It is still above the historical range of 3.1 – 3.5 times, but below the peak levels of 4.8x. Note this ratio ignores the effect of interest rates, which affects affordability, but it does give a quick synopsis of home pricing.


Median House Price to Median Income Ratio


In other economic news, Mortgage applications were flat two weeks ago, with purchases rising 3% and refis falling 5%. Durable Goods orders fell 4.4% on weaker aircraft orders, and the Index of Leading Economic Indicators slowed in October. It is looking like the economy is moderating from its torrid mid-year pace.


Rising home prices means rising home equity, and over 80% of the refis last year were cash-outs. This is back towards bubble levels. This makes sense, because rate / term refis generally don’t make sense with rates at these levels. Cash-out refis are especially attractive if the borrower has credit card debt with rates in the teens.


cash out


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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