FRM Update

August 28, 2017

Trading activity across the MBS and CMO sectors was on the slow side last week as the mortgage and overall bond markets continue to trade in a tight range with minimal changes in yield spreads. Mortgage rates fell 1 to 2bps last week and mortgage applications fell 0.5% on a 1.5% drop in purchase apps and a 0.3% increase in refi apps. New and existing home sales declined in July and were well short of economists’ expectations and capped off a disappointing week for housing.





Trading activity in CMOs was generally slow last week with slightly wider yield spreads in certain CMO structures last week. Depositories continue to focus on stable structures with 4- to 6-year average lives.


Rates and Refis




New Home Sales Sink in July:  The number of new homes sold in July slowed unexpectedly and were much weaker than estimated. The 9.4% month-over-month decline was the sharpest since August 2016, while the 8.9% year-over-year pullback was the largest since June 2014. To be fair, both comparisons were against two of the strongest readings of the current recovery. Nonetheless, the 571k unit annualized pace of sales was the weakest since December and showed declines in three of the four geographic regions.

Existing Home Sales Data Continues to Exhibit Affordability Headwinds:  Sales declined 1.3% MoM to a 5.44MM unit annualized pace, the slowest since August 2016. The result was well short of economists’ forecast of a 0.5% gain and capped off a disappointing week for the housing series.  Prospective buyers are facing affordability and selection issues as demand remained steady and inventories tightened again. On a YoY basis, inventories were down 9.0% and contracted for a 26th consecutive month. Persistent demand and falling inventories helped the median price rise 6.2% from a year ago. The average YoY pace for price gains in 2017 held at 6.5%, the strongest annual pace since 2013.



Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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