Lake Arrowhead Lifestyles Blog

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The U.S. real estate market threatens to undercut the Obama administration’s stimulus-driven economic recovery as home sales resume their record slide following the end of the federal homebuyer tax credit.

Sales of previously owned homes unexpectedly fell 2.2 percent in May, the National Association of Realtors said yesterday, even as mortgage rates remained near an all-time low. New-home sales tumbled 19 percent last month, the biggest drop in 16 years, according to the median forecast of 76 economists in a Bloomberg News survey before the report later today.

The end of the tax credit in April is putting a strain on a market still hurting from the worst collapse since the Great Depression. Foreclosures may reach 1.9 million this year after a record 2 million in 2009, according to Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. It would take 8.3 months to sell all available 3.89 million existing homes, the Realtors’ association said.

“We’re going to see a home-sales air pocket after the end of the tax-credit stimulus,” said Richard DeKaser, a former economist at the U.S. Bureau of Economic Analysis who founded Washington-based Woodley Park Research. “That means housing will be a drag on third-quarter economic growth.”

The Standard & Poor’s 500 Index fell 1.6 percent yesterday as the home sales data raised concerns that economic growth isn’t strong enough to justify the 6 percent run-up in stock prices in the previous two weeks. The yield on 10-year U.S. Treasury notes fell 0.09 percentage point to 3.16 percent.

Prices Are Crucial

The U.S. economy will expand 3 percent from July through September, down from 3.3 percent this quarter and 5.6 percent in the final three months of 2009, according to the median forecast of 67 economists surveyed by Bloomberg News. The falloff may be steeper if the property market deteriorates more than currently expected.

“If there is a sharp decline not only in housing sales but in housing prices, that could threaten a recovery,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia.

Combined sales of new and existing homes will drop 12 percent in the third quarter from the three months ending June 30, according to a forecast by Fannie Mae, the largest mortgage financier, before yesterday’s report. Freddie Mac, which ranks second after Fannie Mae, is projecting a 7.1 percent decline.

The median U.S. home price slid 29 percent to an almost eight-year low of $164,600 in February from a peak of $230,300 in July 2006, according to data from the Realtors group. Prices will drop 3.6 percent this year after falling 4.5 percent in 2009, the Washington-based Mortgage Bankers Association estimates.

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Friday, June 18, 2010 7:00 AM
Price Trend: Neutral
Price Volatility: Very High
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Current Conditions:
FNMA 4.0 100-05 (-2)
GNMA 4.5 100-16 (+0)
10yr Yield 3.212
Today’s Economic Data (PST)
None
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Commentary:
The bond market is flat this morning after a pretty volatile session yesterday. Most of yesterday’s gains
have been retained so far today.
There is no data being released today. Next week figures to be a busy one. Home sale data (both existing
and new), an FOMC meeting and GDP figure to highlight the week.
As we talked about yesterday, volatility can increase on Friday’s during the summer months because of
lower volumes. So with that in mind, I always like to look at the weather reports for the 2 major cities of
influence (New York and Chicago). It looks like typical summer weather in Chicago; hot with afternoon
thunderstorms. New York looks like a perfect summer weekend is on tap. So, traders will likely be heading
to their lake houses in Illinois or out to the beach on Long Island this weekend. This is not your typical
market analysis, but if you watch it over the summer I think you will find this theory to be very true.

MMG Update + By The Numbers - Monday, May 10, 2010 10:32am ET 

Current Trend Direction: Sideways and extremely volatile

Risks favor: Start day floating

Current Price of FNMA 4.5% Bond: $101.22, -25bp

Stocks are soaring and bonds are headed lower this morning as news from Europe is, once again, influencing trading around the world.  In an effort to restore confidence and address sovereign debt concerns in Europe, the European Central Bank (ECB) along with the International Monetary Fund (IMF) met over the weekend and unveiled a 750 Billion Euro ($955 B) loan package.  Additionally, the ECB will begin purchasing government Bonds and private debt of countries facing instability like Greece, Portugal, Ireland, and Spain.  If a plan like this sounds familiar to you, we agree.  It appears that the Europeans are looking at some of the financial strategies successfully used in the US, like TARP and the Bond purchase programs, and trying to institute a similar approach. 

So far today, the news has instilled some confidence in the Euro and has propelled Stocks around the globe higher.  This is also unwinding some of the flight to safety trade we have recently seen.  Looking out longer-term, this enormous stimulus package will have to be paid back and by countries that are already struggling.  This is a significant amount of new debt that could lead to greater inflation in the future.

In a effort to further help the Eurozone, the US Federal Reserve will reopen swap lines with European Central Banks to ensure liquidity and stabilize money markets.  You may recall the Fed had opened swap lines with ECB back in 2007 during the sub-prime mortgage meltdown, to help achieve the same goal. 

There are no economic reports due for release today and the week will be light for data with just Retail Sales for April being the highlight on Friday.  However, starting tomorrow, the Treasury will unload a significant amount of new debt with $38B 3-Year T-Notes, followed by $24B 10-Years on Wednesday, and $16B 30-Year Bonds on Thursday. 

Thursday, April 15, 2010 7:10 AM

Price Trend: Neutral

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Current Conditions:

FNMA 4.5 100-01 (+2)

GNMA 4.5 100-24 (+1)

10yr Yield 3.872

Today's Economic Data

Jobless Claims 5:30

Empire Manufacturing 5:30

Industrial production 6:15

Philly Fed 7:00

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Commentary:

There has been a lot of data released this morning which have produced a somewhat conflicting message.

Regional manufacturing surveys (Philly and NY) both beat expectations and indicate continued growth in

that sector of the economy. The Industrial Production report, on the other hand, indicates a slowing growth.

Capacity utilization increased slightly but is still below the level where wages begin to become a real

concern. So these things are generally positive for the overall economic outlook. Jobless claims, however,

rose again last week and are not consistent with an improving job market. Bond prices (and stocks) have

reflected this confusion so far this morning. Prices have been somewhat volatile but have settled very close

to unchanged.

Tuesday, March 09, 2010 7:00 AM

Price Trend: Positive

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Current Conditions:

FNMA 4.5 101-11 (+5)

GNMA 4.5 101-28 (+7)

10yr Yield 3.692

Today's Economic Data

NONE

_________________________________________________________________

Commentary:

The slow week continues. Today is another day void of economic data. There is, however, a $40bln 3yr

Treasury auction this morning. The 3yr deals have gone well lately and this one is expected to go

accordingly. Tomorrow the news picks up ever so slightly with Wholesale Inventories.

The market is off to a good start on this very busy Wednesday morning. The only data released this

morning was New Home Sales which missed expectations much the same way that existing home sales did.

The median home price did rise, but so did inventory. The largest declines in sales were seen in the South

and the Mid-West. The Northeast and West saw increases.

The real action, however, gets started later this morning. The two big events of the day are the FOMC

announcement and the Treasury's auction of 5yr notes. Yesterday's 2yr auction went well and the

expectation is that the 5yr will, too. At 11:15 the FOMC will issue their policy statement. Once again, rates

are not expected to change. The attention will be on the policy statement.

Tuesday, January 26, 2010 7:10 AM

Price Trend: Positive

_________________________________________________________________

Current Conditions:

FNMA 4.5 100-30 (+4)

GNMA 4.5 101-08 (+5)

10yr Yield 3.609

Today's Economic Data

Case-Shiller Home Prices 5:00

Consumer Confidence 7:00

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Commentary:

Bonds are off to a good start this morning after a lackluster performance yesterday. The Case-Shiller Home

Price Index showed that prices fell 5.3% in November from one year earlier. On a monthly basis they fell

0.2%. This was a little worse than anticipated. There were some markets that showed monthly appreciation

including San Diego, San Francisco and Los Angeles. The full table is listed below.

Consumer Confidence was also released this morning and showed some improvement and posted some its

highest readings in 2 years. There was not a lot of market reaction to this, though.

The FOMC meeting gets underway today with their policy announcement due out tomorrow. Treasury will

also be auctioning 2 yr notes today.

Monday, January 25, 2010 7:10 AM

Price Trend: Negative

_________________________________________________________________

Current Conditions:

FNMA 4.5 100-30 (-1)

GNMA 4.5 101-06 (-2)

10yr Yield 3.613

Today's Economic Data

Existing Home Sales 7:00

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Commentary:

Today starts a very busy week in the bond market. The economic calendar is full. The Treasury has 3 days

of auction. And, last but not least, the FOMC meets for the first time in 2010. Expect volatility to be high.

The data got started today with a very disappointing existing home sales report. Sales of previously owned

homes fell by their largest monthly margin since the measurement began. The report did have 2 bright

spots, though. First, sales were up 4.9% in 2009 compared to 2008. Second, home prices showed an

increase in December. New home sales will be released later this week.

Market Outlook

Wednesday, December 02, 2009 7:05 AM

Price Trend: Negative

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Current Conditions:

FNMA 4.5 102-02 (-4)

GNMA 4.5 102-08 (-4)

10yr Yield 3.308

Today's Economic Data

ADP Employment Survey 5:15

Fed Beige Book 11:00

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Commentary:

So far this morning bonds have continued the selling trend that started yesterday. The ADP Employment

Survey was close to being in line with expectations when the revision of the previous month's report is taken

in to consideration. This did not give any indication about what to expect from the Government's report on

Friday. Mortgage applications were up slightly last week. According to the MBA the average mortgage rate

has dropped to 4.79% last week. Historically low rates should help fuel refinance activity but the larger gain

in applications was from purchase transactions.

Later this morning the Fed will release their economic outlook (Beige Book). Thursday and Friday have a

full slate of data which should bring some more price movements.

This Week's Economic Calendar (All times Central

Market Outlook

Monday, November 16, 2009 7:15 AM

Price Trend: Positive

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Current Conditions:

FNMA 4.5 101-26 (+2)

GNMA 4.5 102-01 (+3)

10yr Yield 3.397

Today's Economic Data

Retail Sales 5:30

Empire Manufacturing 5:30

Business Inventories 7:00

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Commentary:

Bonds are up this morning after the release of some economic data that indicated less growth than was

forecast. Headline Retail Sales beat expectations, but a downward revision to the previous report put the 2

month total in line with forecasts. The ex-autos number was lower than expected and also included a

downward revision to September's reading. The Empire manufacturing Index fell below expectations, but

still did show consistent growth in that sector. A typically volatile number, this report does not usually move

markets, especially when it is released at the same time as Retail Sales.

The rest of the week is very busy with inflation data and housing data on tap.