Distressed Sales Drop to Lowest Level Since 2007

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Distressed Sales Drop to Lowest Level Since 2007:

In yet another sign of strength in our housing market, sales of distressed homes (REO real estate owned by banks) has dropped to their lowest level since April 2007.

The most recent readings from CoreLogic show that distressed home sales made up just 11.1% of total home sales in April, down 3 percentage points from April 2014 and down 1.5 percentage points from March.

Broken up, REO sales accounted for 7.4% and short sales made up 3.7% of total home sales in April. Additionally, the short sales percentage fell below 4% in mid-2014 and has remained stable since then.

At its peak in January 2009, distressed sales totaled 32.4% of all sales, with REO sales representing 27.9% of that share.

“The ongoing shift away from REO sales is a driver of improving home prices since bank-owned properties typically sell at a larger discount than short sales. There will always be some level of distress in the housing market, and by comparison, the pre-crisis share of distressed sales was traditionally about 2%,” the CoreLogic report said.

“If the current year-over-year decrease in distressed sales share continues, the distressed sales share would reach that ‘normal’ 2-percent mark in mid-2017,” it continued.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.50 MBS) gained just +4 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways.

We had a lot of volatility last week with a big swing in pricing.  The spread between our intra-day high and our intra-day low for the week was -107 basis points.

International events were the primary factor in trades for the week as concern over a collapsing Chinese stock market and a Greek referendum vote to not accept the bailout terms from the Troika caused a big spike in demand for all U.S. based long bonds and directly drove up MBS pricing to give us our best rates of the week on Tuesday and Wednesday.

But as fear over those two events started to abate, MBS sold back off and we gave up our lowest rates of the week to end up right back where we started.

Even though international events drove our markets, we still had a lot of domestic data hit:
The “Talking Fed”:  Both the minutes of the last FOMC meeting and Janet Yellen’s speech in Cleveland on Friday show that there has been big strides in our economy but the Fed feels that there is still a little more growth needed before they start to raise interest rates.  Still, Janet Yellen (and 15 out of the 17 Fed voting members) made it clear that we should expect at least one rate hike this year.

ISM Services:  This report represents 2/3 of our economy and it was a very strong report – coming in at 56.0 which was a small improvement over May’s data.  Considering anything over 50 is expansionary…a reading of 56 is very good.

Wholesale Inventories:  Were more than double the market expectations (0.8% vs est of 0.3%).  This is older data from May but this strong reading will cause many economists to upgrade their projections for the 2nd QTR GDP.

Treasury Auctions:  It was the tale of two auctions as we saw very strong demand for our 10 year note (which helped to briefly lower mortgage rates) but we had much weaker demand for the 30 year bond auction (which helped to increase mortgage rates).

What to Watch Out For This Week:

Date Time (ET) Economic Release Actual Market Expects Prior
13-Jul 2:00 PM Treasury Budget $51.0B $70.5B
14-Jul 8:30 AM Retail Sales 0.30% 1.20%
14-Jul 8:30 AM Retail Sales ex-auto 0.50% 1.00%
14-Jul 8:30 AM Export Prices ex-ag. NA 0.70%
14-Jul 8:30 AM Import Prices ex-oil NA 0.00%
14-Jul 10:00 AM Business Inventories 0.20% 0.40%
15-Jul 7:00 AM MBA Mortgage Index NA 4.60%
15-Jul 8:30 AM PPI 0.30% 0.50%
15-Jul 8:30 AM Core PPI 0.10% 0.10%
15-Jul 8:30 AM Empire Manufacturing 3.5 -2
15-Jul 9:15 AM Industrial Production 0.20% -0.20%
15-Jul 9:15 AM Capacity Utilization 78.10% 78.10%
15-Jul 10:30 AM Crude Inventories NA 0.384M
15-Jul 2:00 PM Fed’s Beige Book NA NA
16-Jul 8:30 AM Continuing Claims NA NA
16-Jul 8:30 AM Initial Claims 283K 297K
16-Jul 8:30 AM Continuing Claims 2275K 2334K
16-Jul 10:00 AM Philadelphia Fed 12 15.2
16-Jul 10:00 AM NAHB Housing Market Index 59 59
16-Jul 10:30 AM Natural Gas Inventories NA 91 bcf
16-Jul 4:00 PM Net Long-Term TIC Flows NA $53.9B
17-Jul 8:30 AM CPI 0.30% 0.40%
17-Jul 8:30 AM Core CPI 0.20% 0.10%
17-Jul 8:30 AM Building Permits NA 1275K
17-Jul 8:30 AM Housing Starts 1123K 1036K
17-Jul 8:30 AM Building Permits 1150K 1275K
17-Jul 10:00 AM Mich Sentiment 96.5 96.1

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

EHO