Existing Home Sales Fall Again

Mortgage bonds continue to hug the bottom of the floor of support provided by the 50-day moving average. Today marks the 6^th day that bond prices have been flirting with this critical level. The concern is that if this floor is broken, there is a straight shot down to the 100-day moving average, which would push mortgage interest rate pricing higher. One key influencer will be the stock market, which has been vacillating from negative to positive throughout the day. If stock prices decide to take a move higher, this will be bad news for the near-term direction of mortgage interest rates.

The big news of the day came from the Existing Home Sales report, which showed a month over month decrease of 4.9% from February. This is highly concerning, considering that mortgage interest rates were falling during this time. Further, Sales were down 5.4% on a year over year basis. This shows an overall slowing trend in the strength of the housing market. As we can expect to see in a slowing market, inventory levels rose from a 3.5-month supply in February to a 3.9-month supply in March. This throws water on those who believed that the slowing housing market in December was a result of the stock market falling, which is also called the “Wealth Effect.” Given that stock prices have climbed back to near all-time high levels, that can no longer be used as an excuse. We will see how this report is justified by those who believe in an endlessly strong housing market going forward.

Given the lack of strength in the bond market, we will maintain a locking bias.