- U.S. existing home sales expected to move back up toward last summer’s 9-year high
- MBA mortgage apps see nice upward pop as 30-year mortgage rate falls to 3-year low
- Kuwait oil strike ends after 3 days
- EIA report expected to show a +$3.0 million bbl increase in U.S. oil inventories
U.S. existing home sales expected to move back up toward last summer’s 9-year high — The market is expecting today’s March existing home sales report to show a +3.9% increase to 5.28 million, recovering part of Feb’s -7.1% decline to 5.08 million. U.S. existing home sales posted a 9-year high of 5.48 million units last summer in July 2015 but then fell back and are currently -7.3% below that 9-year high.
U.S. home sales softened during the winter due in part to the financial market turmoil at the beginning of the year. Home sales have also been held back by a tight supply of homes available for sale. There were only 4.4 months worth of homes on the market in February, just mildly above the 11-year low of 3.9 months posted in Dec 2015 and well below the long-term average of 7.0 months.
The real estate market is hoping for an improvement in home sales coming into spring as a new batch of homes are put onto the market and as the spring selling season heats up. The good news is that mortgage rates are still very low, which helps with mortgage affordability. However, home affordability has been hurt by the steady climb in home prices seen since the end of the Great Recession. The median price of an existing home posted a record high of $236,300 in June 2015 and is currently only -10.1% below that high. Meanwhile, the U.S. home price indexes continue to move steadily higher, illustrating the upward pressure on home prices. The FHFA U.S. home price index has risen by +28% from the housing-bust low posted in March 2011 and is up by +6.0% y/y.
MBA mortgage apps see nice upward pop as 30-year mortgage rate falls to 3-year low — The MBA mortgage applications index in last week’s report showed a nice upward pop of +10.0% thanks to the sharp -12 bp drop in mortgage rates that week to 3.59%. The purchase sub-index rose by +8.4% and the refinancing sub-index rose by +11.3%. MBA mortgage applications in today’s report should sustain most of the previous week’s strength as the 30-year mortgage rate last week fell by another -1 bp to a new 3-year low of 3.58%. Last week’s new 3-year low in mortgage rates should spark continued strength in refinancing activity in particular.
Meanwhile, the markets will be carefully watching the purchase index for signs of whether home sales will pick up this spring. Last week’s +10.0% upward pop in the purchase sub-index indicated that there was at least a small surge of new people out applying for mortgages and looking for new homes to buy.
Kuwait oil strike ends after 3 days — Kuwait’s oil strike is due to end Wednesday morning (Kuwait time) thus ending the strike at three days (Sun-Tue). Workers agreed to end the strike after the government refused to negotiate while the workers were on strike. There will remain the threat of a new strike until a settlement is reached. The end of the Kuwait oil strike means that the main factor holding up oil prices since Sunday’s failed Doha production-freeze talks has now been kicked out from under the oil market. It will now become more obvious about the extent to which the recent 42% recovery rally was driven by market expectations for a production freeze.
The production freeze in the big picture would not mean much since most nations were freezing production near record highs and since most nations cheat on their production ceilings any way. Nevertheless, if oil producers had been able to reach a production freeze agreement, it would have at least shown that oil producers are capable of cooperative action when the chips are down.
EIA report expected to show a +$3.0 million bbl increase in U.S. oil inventories — The market consensus for today’s weekly EIA report is for a +3.0 million bbl rise in U.S. crude oil inventories, a -10,000 bbl decline in Cushing oil inventories, a -2.0 million bbl decline in gasoline inventories, an unchanged level of distillate inventories, and an unchanged refinery utilization rate of 89.2%. In yesterday’s API report, U.S. crude oil inventories rose +3.1 million bbls, Cushing oil inventories fell by -235,000 bbls, gasoline inventories fell by -1.0 million bbls, distillates fell by -2.5 million bbls.
U.S. crude oil inventories remain in a massive glut at +34.7% above the 5-year seasonal average and at a record high of 536.531 million bbls. Product inventories are also plentiful with gasoline inventories at +10.3% above average and distillate inventories at +28.0% above average.
Meanwhile, U.S. oil production since mid-January has been falling due to the renewed plunge in oil prices in Jan-Feb, which caused more oil companies to give up hope and close down more oil rigs. Yet production on a year-to-date basis has so far fallen by only -2.4% even though another 187 rigs (-35%) have been shut down so far this year. The grand total decline in oil production so far is only -6.6% to 8.977 million bpd from the 43-year high of 9.610 million bpd posted in June 2015.
