Existing Home Sales showed weaker-than-expected numbers this morning, but that hasn’t stopped the slide in mortgage-backed securities. This is a counter-intuitive movement so let’s take a deeper look.
First, the supply of homes dropped from 7.3 months to 6.8 months. With less supply, there is a tendency for home values to stabilize and that is exactly what is happening. Median home prices are turning flat versus year-over-year declines during the last quarter of 2006.
Additionally, there is a growing feeling that the housing market has already bottomed-out and that the worst is behind us. A re-energized housing market will fuel additional economic growth in 2007.
Tomorrow, New Home Sales data will be released and the markets will respond in a similar fashion to today’s data. Weak or strong, the markets are looking for signs of strength and that is exactly what they’ll find.
Mortgage rates are higher on the day already.