Following yesterday afternoon’s drop, US markets opened higher by more than one percent before paring gains as new home sales data failed to meet expectations. Optimism started strong as durable goods orders came in better than expected along with narrower jobless claims for the week. Despite the strength in such figures, housing data today continued to dissapoint despite signs of a bottoming in the sector. Investors are troubled on signs that borrowing costs are beginning to rise and may hamper economic recovery. The yield curve has begun to steepen while a report yesterday by the Mortgage Bankers Association showed rates continuing to increase on 30-year and other mortgage loans. Markets may extend their declines while the Dow looks to be forming a head-and-shoulders bottom formation. On the currency front, activity in the euro saw traders pulling the currency to below 1.38 earlier in the session but it has since moved higher for now. Several other pairs also appear weak on technicals and may signal strength for the US Dollar.
[B]New Home Sales[/B] data for April came in slightly below expectations with a 0.3% rise while economists polled by Bloomberg had been looking for a gain of 1.0% following a three percent decline in March. On an annualized basis, the figure came in at 352,000 which proved slightly better than the previous month’s 351,000 sold. Dwelling deeper into the release, data appears mixed on the future health of the housing sector. The amount of new homes for sale fell which led to a reduction of inventory for the third time to 10.1 months’ supply. Confusing investors, median price rose 3.7% to the highest since the December report while average price fell for the second consecutive month but at a meager 1.2%. Also dismaying investors was a statistic that showed the median months for sale of a home since completion gaining to 10.9 months from 10.2 months in March.
Also released today but often overlooked was the MBAA’s [B]Mortgage Delinquencies[/B] report which showed foreclosures and delinquencies rising in the first quarter. Deliquencies rose to 9.12% from 7.88% in the fourth quarter while foreclosure inventory rose to 3.85% from 3.30% of the total supply of loans. The figure shows that deterioration in the economy which has led to higher unemployment is starting to have a larger effect on ‘safer’ assets. Inventory of prime loans in foreclosure jumped to 2.49% from 1.88% in the fourth quarter and 1.58% in the third. The pace of increase in the figure is noteable while the inventory of foreclosure in subprime loans have started to moderate, rising to 14.34% from 13.71% in the fourth quarter and 12.55% in the prior quarter. Grim signs such as these make a reasonable case for why the financial crisis remains far from over.