Rates Up, Home Sales & Economic Outlook, NY Fed’s MBS & Treasury Trading Guidelines

Home Sales & Economic Outlook
“Why don’t pirates ever buy houses? Because they hate YARRRRRRRdwork!” But plenty of other people bought houses they shouldn’t have, or want to buy a house. But record low mortgage rates have not yet produced much of a lift for home sales: sales of both new and existing homes appear to have risen modestly following their sharp declines in July in the wake of the expiration of the homebuyer tax credits. With the declines, the supply of unsold homes remains uncomfortably high relative to sales. Sales normally weaken during the fall on a non-seasonally adjusted basis. Analysts believe that because sales are already so low, however, they probably will not fall as much as they normally would, which means the seasonally adjusted data may show modest gains.

Anyone looking for a very wide-ranging economic write up for a report or presentation should check out Fannie’s Monthly Economic Summary which was released last Friday. Here’s an excerpt from the Housing Bottom Proves Elusive section:

While current housing market conditions seem dire with ample room for improvement, leading indicators suggest that a free-fall is behind us but that a strong rebound appears unlikely. After falling steadily by 42 percent between the end of April and early June, the purchase mortgage applications index has stabilized and has moved sideways through the end of August. Given weaker-than-expected housing activity in the second quarter, we lowered our projection of housing starts and home sales for the rest of year, as well as for coming years. We expect housing starts to increase in 2010 by about four percent from an annual record low level in 2009, versus a gain of about 17 percent projected in the previous forecast. Total home sales this year are projected to decline by about seven percent from 2009 versus a slight increase in the August forecast.

NY Fed Report on MBS & Treasury Trading
The New York Fed has produced a best practices report on the security side of the business. “We recommend that all Treasury, agency debt, and agency MBS market participants incorporate best practices in their operations in order to promote trading integrity and to support an efficient marketplace.”

Rates Slightly Worse After Jobless & Inflation Data
Yesterday a sell-off in fixed income securities, which of course include mortgage-backed securities, resulted in investor price changes for the worse. The longer end (like 30-yr bonds) in particular was hit in part from Japan’s currency intervention as investors expect the BOJ to buy in the shorter end of the curve. By 3PM EST the 10-yr was down .5 in price, and by the close current coupon MBS’s were worse by .375 although slightly higher rates (like for 4.75-5.125% 30-yr mortgages) were worse less than .250 with $3.5 billion being sold – a real pickup in sales volume.

This morning we found out that the Producer Price Index was +.4% in August, and ex-food & energy it was +.1% – both pretty close to expectations. Also weekly Jobless Claims were 450k, down from 453k, some of the lower claims that we’ve seen recently (a 2 month low, and the 4-week moving average is trending down). We still have the Philly Fed numbers ahead of us, and Fed Governor Duke will open a public hearing on the Home Mortgage Disclosure Act. After the news we find the 10-yr yield chopping around 2.72%, and mortgages are slightly worse.