Morning Report: New Home inventory is declining.

Vital Statistics:

Stocks are flat this morning on no real news. Bonds and MBS are flat as well.

New Home Sales came in at 701,000, a hair above consensus and in line with the previous few months. The number was up 15.5% on an annual basis. There was 321,000 homes for sale at the end of September, which represents a 5.5 month supply. The inventory of homes for sale has been consistently declining, however the median sales price was down 8% MOM and 9% YOY. This appears to have been driven by a fall in the number of homes sold at the higher price points, but could be a sign of builders discounting as well. Note that the homebuilders have been on a tear this year, with the homebuilder ETF right at all time highs.

The new mortgage backed securities containing high LTV VA cashouts made their trading debut yesterday, and as expected they traded well back of normal Ginnies. Remember that GNMA made 90 LTV cashout VAs ineligible for regular delivery into Ginnie I and Ginnie II mortgage backed securities in response to investor complaints about fast prepayment speeds. These loans had to go into custom pools and the bid for these securities in the market reflected the higher risk. They traded anywhere from 2 to 4 points below commensurate Ginnie MBS. For example, the 4% coupon traded 120 ticks (or 3.75 points) behind. In other words, the 4% custom pools traded at 100, versus the 4% December Ginnies which traded at 103.75, which means that giving a borrower par pricing is going to be almost impossible.

Amazon.com disappointed the street with its holiday forecast. They anticipate $80 – $86 billion in revenue, which lagged the street estimate of $87 billion plus. This may just be Amazon-specific, but the economy has been held up by consumer spending and wage growth. If the spending aspect is declining, it means a weak Q4. The stock is down 7% pre-open.

Author: Brent Nyitray

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