Morning Report: Existing home sales disappoint, but some internals are better

Vital Statistics:

 

Last Change
S&P futures 2999 -8.5
Oil (WTI) 56.94 0.14
10 year government bond yield 2.05%
30 year fixed rate mortgage 4.06%

 

Stocks are lower this morning as earnings continue to come in. Bonds and MBS are flat.

 

Today is a big day for earnings, with numbers coming out for Ford, Boeing, Caterpillar, Facebook, and Tesla.

 

House prices rose 0.1% in May, according to the FHFA House Price Index. They were up 5% on a YOY basis. Home price appreciation has been decelerating across the board, but it is most pronounced in the Pacific and Mountain regions.

 

FHFA regional

 

Mortgage Applications fell by 2% last week as purchases and refis fell by the same amount. This was despite a 4 basis point drop in rates.

 

Existing Home Sales fell 1.7% in June, according to NAR. “Home sales are running at a pace similar to 2015 levels – even with exceptionally low mortgage rates, a record number of jobs and a record high net worth in the country,” said Lawrence Yun, NAR’s chief economist. Yun says the nation is in the midst of a housing shortage and much more inventory is needed. “Imbalance persists for mid-to-lower priced homes with solid demand and insufficient supply, which is consequently pushing up home prices,” he said.

 

Inventory was 1.93 million units, which represents a 4.4 month supply. Historically a balanced market had 6 – 6.5 months’ worth of supply. As Yun notes above, there is a big mismatch in inventory, with a complete dearth of properties at the low / mid price points. McMansions abound, however. Despite these issues, the first time homebuyer accounted for 35% of sales in June, which is approaching the historical norm of 40%. The first time homebuyer had been largely MIA for most of the post-crisis timeframe, accounting for 30% of sales (or even less). On the flip side, investors (represented by all cash sales) fell to 10%. With home price appreciation leveling out, we may start to see some funds who raised capital for the REO-to-Rental trade in the aftermath of the crisis ring the register and sell some of these properties as the funds wind down. Certainly cap rates are not what they were 10 years ago.

 

The median home price reached an all-time high of 285,700. Sentier Research has the median income at $63,400 as of May 2019. This puts the median house price to median income rate at just about 4.5x. Historically this is a very high number, however it is important to note that interest rates will influence this number. If you look at other metrics besides incomes and prices, homes are not that expensive on a historical basis.

 

 

Author: Brent Nyitray

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

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