Morning Report: New home sales surprise to the upside

Vital Statistics:

Stocks are flat as we await earnings from heavyweights like Facebook, Microsoft and Caterpillar. Bonds and MBS are up.

New Home Sales surprised to the upside, coming in at 692,000, indicating that lower mortgage rates are helping sales. The most interesting number in the report was the median price of $302,000, which is down 10% from a year ago. This indicates that builders are concentrating on the lower price points, or at least that is where the sales are concentrated. Still, a 10% drop in median home prices is an eye-popping number.

Mortgage applications fell 7% last week as purchases fell 4% and refis fell 11%. Rates were up 2 basis points for the week, however the week included the Good Friday holiday so there might be some noise in there as well. “The 30-year fixed mortgage rate has risen 10 basis points in three weeks, and is now at its highest level in over a month,” said MBA Chief Economist Mike Fratantoni. “Borrowers remain extremely sensitive to rate changes, which is why there has been a 28 percent drop in refinance applications over this three-week period. Purchase activity also declined, but remains almost 3 percent higher than a year ago. Borrowing costs have recently drifted higher because of ebbing geopolitical concerns, as well as signs of strengthening in the U.S. economy, including the recent data pointing to robust retail sales.”

The CFPB is becoming a little more creditor-friendly, by giving firms under investigation information about what they did that was wrong. “Consistent with the updated policy, CIDs [civil investigative demands] will provide more information about the potentially applicable provisions of law that may have been violated,” the Bureau said in a news release. “CIDs will also typically specify the business activities subject to the Bureau’s authority. In investigations where determining the extent of the Bureau’s authority over the relevant activity is one of the significant purposes of the investigation, staff may specifically include that issue in the CID in the interests of further transparency.”

Flagstar reported a 30% drop in originations in the first quarter, falling from $7.9 million in the first quarter of 2018 to $5.5 million in the first quarter of 2019. On a QOQ basis, originations were down 13% as well. Gain on sale margins rebounded from the fourth quarter, increasing to 72 basis points from 60, although they are down from 77 in the first quarter of last year.

The NY Fed asks the question whether tax reform has inhibited home sales. Spoiler alert: it looks like that is the case.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray