Interest Rate Roundup

Wednesday, January 27, 2010

New home sales slip, hit 9-month low

We just got the latest new home sales figures for the month of December. Here's what they showed:

* New home sales dropped 7.6% to a seasonally adjusted annual rate of 342,000 from an upwardly revised 370,000 in November. That missed expectations for a sales rate of 366,000, and it leaves sales at the lowest level since March. The regional figures were all over the map, with sales up 42.9% in the Northeast, down 41.1% in the Midwest, up 5.2% in the West, and down 7.3% in the South.

* The supply of new homes for sale dropped again to 231,000 from 235,000. That's the 32nd consecutive monthly decline and it leaves the raw number of homes for sale at the lowest level since April 1971. But due to the decline in the sales rate, the "months supply at current sales pace" indicator of inventory rose to 8.1 from 7.6. That's the highest since June.

* The median price of a new home rose 5.2% to $221,300 from $210,300 in November. That was still a decline of 3.6% from the year earlier level, however.

The new home market continued to wilt late in 2009. Sales slipped to the lowest level in nine months, while pricing remained weak. Ongoing labor market malaise and the tax credit "hangover" effect are two headwinds. Another is aggressive competition from banks and other lenders buried in foreclosures. The buyers who are willing and able to buy are flocking to cheaper, distressed, "used" homes because -- to paraphrase Willie Sutton -- "That's where the bargains are."

I still believe the "three steps forward, two steps back" recovery is in place. But as I've said all along, it will NOT be a vigorous, V-shaped affair like we've seen in past housing recoveries. We experienced a once-in-a-lifetime housing bubble, not a traditional expansion. That means we shouldn't expect a traditional, vigorous, cyclical recovery.

Friday, January 08, 2010

Curve, inflation plays flying

Earlier this morning, I published a piece predicting that the Fed under "Helicopter" Ben Bernanke won't tighten rates until the cows come home.Today's jobs report only underscores my certainty in this matter.

The currency and bond markets are getting the message loud and clear, with breakouts, breakdowns, and crazy activity visible all over the place. A sampling:

* Forget the yen and the euro. Look at the Korean won, the Indonesian rupiah, the Indian rupee, or the Philippine peso. They're all breaking out against the buck. You can see the same thing happening in South America, with the Brazilian real and Chilean peso about to blow the doors off the dollar.

* Back-month Eurodollar contracts are flying. December 2010 EDs up 9 ticks to 98.78 at last check, for instance. That means Fed tightening is being priced OUT of the market.

* The yield on the 2-year Treasury Note was recently down 7 basis points to 0.95. Meanwhile, the yield on the 30-year Treasury Bond was recently UP about a bp to 4.69%. Result: The 2s-to-30s spread just hit 373.8 basis points, the highest in the history of my data, which goes back to 1980.

* And inflation concerns? Well, the 10-year TIPS spread has jumped to 246.5 bps. That's the highest going all the way back to July 2008.

What's the umistakably clear message from the capital markets: 'Fed -- wake up! Start hiking rates." But as I noted, they won't ... until it's too late.

Job market weak in December, easy money to keep on coming

The December jobs report was disappointing, with the economy shedding 85,000 jobs against expectations for an unchanged reading. November's reading was revised to +4,000 from -11,000. But the unemployment rate held at 10%, which has to be disappointing, and the separate household survey showed a nasty loss of 589,000 jobs.

Some slight positives: Average hourly earnings were up 0.2% and average weekly hours held at 33.2. Temporary help agencies added 47,000 jobs, the fifth positive reading in a row and a potential precursor to gains in full-time jobs. The private nonfarm diffusion index, which measures how many industries are shedding workers vs. how many are adding them, ticked up ever so slightly to 38.7 from 38.5.

This report virtually guarantees the Fed will keep flooding the markets with easy money. That seems to be the knee jerk reaction in the marketplace, too. The Dollar Index has given up early gains ... gold has swung from early losses to small gains ... and deferred-month eurodollar contracts are surging. That's the market pricing OUT Fed tightening.

Tuesday, January 05, 2010

Pending home sales plunge 16% in November

The National Association of Realtors came out with its pending home sales data for November a little while ago. Here's what the numbers looked like:

* Pending sales plunged 16%. That compared with an expected decline of 2%. Yikes!

* On a year-over-year basis, the pending sales index actually rose 15.5% to 96 from 83.1.

* Regionally, sales fell across the country. Sales dropped 2.7% in the West, 15% in the South, and 25.7% in both the Northeast and Midwest.

Pending home sales plunged by a much larger than expected margin in November. That's the bad news. The good news? It's largely tax credit related. Since the period covered in this report, the first-time buyer credit has been expanded and extended. We've also seen indicators of unemployment and economic growth stabilize over the past few months. So after we work through this period of housing indigestion, we'll likely see sales rates gradually pick up again and home inventories gradually decline.

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