Morning Report: Home price appreciation continues

Vital Statistics:

 LastChange
S&P futures4,3996.2
Oil (WTI)72.240.55
10 year government bond yield 1.27%
30 year fixed rate mortgage 3.02%

Stocks are flattish this morning as we await the FOMC decision at 2:00 pm. Bonds and MBS are down small.

Home price appreciation continues its torrid pace as the Case-Shiller Home Price Index rose 17% YOY in May. Given that May of 2020 was lockdown time, the numbers are probably distorted by small sample sizes, however all indicators point to higher prices. The FHFA House Price Index (which measures only homes with conforming mortgages) rose 18%. The real estate market is simply on fire right now.

Mortgage applications rose 5.7% last week as purchases decreased 2% and refis rose 9%. “The 10-year Treasury yield fell last week, as investors grew concerned about increasing COVID-19 case counts and the downside risks to the current economic recovery,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Refinance applications jumped, as the 30-year fixed mortgage rate declined to its lowest level since February 2021, and the 15-year rate fell to another record low dating back to 1990.”

Mortgage REIT AGNC Investment recently reported second quarter earnings, which were dinged up by widening mortgage backed securities spreads. Widening spreads means that the difference between the yield on mortgage backed securities and Treasuries is increasing. In practical terms, this means that mortgage rates are not falling as much as the 10 year yield is.

The reason for this is anyone’s guess, but it is probably due to fears that the Fed will start tapering MBS purchases sooner rather than later. The Fed is looking at the increase in housing values and asking the question whether their MBS purchases are exacerbating it.

My guess is that they are not driving the hot housing market (that is supply and demand issue) but the purchases are probably not necessary any more. That said, with fears of another round of COVID, the Fed is probably going to err on the side of caution.

Author: Brent Nyitray

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

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