Needham Real Estate

U.S. Treasury securities headed up early Thursday, capitalizing on strength in the European bond markets. But a huge increase in existing home sales put thoughts of a softening housing market on hold and raised concerns about future rate hikes that could exceed the two currently priced into the markets.

Selling was rampant, with prices falling and yields, which move in the opposite direction of prices, rising across the board. Traders may be extra-sensitive to economic news due to the proximity of the Fed meeting, which occurs Tuesday, March 28. First-time unemployment claims plunged unexpectedly, adding to what appears to be growing economic strength. Today's increases in yields, however, had only minor impact on mortgage rates, which held near recent levels.

Surprisingly strong existing home sales put pressure on Treasuries. Sales in February climbed 5.2 percent to an annual rate of 6.91 million units -- the biggest percentage gain in two years. Although warm weather was cited as a sales catalyst, other data were positive, as well. The median home price rose 10.6 percent to $209,000 and home sales climbed in three of four regions, but inventories of unsold homes were also on the increase. Existing homes sales account for about 85 percent of all homes sold.

First-time unemployment claims for the week ended March 18 fell by 11,000 to 302,000 -- the first decline in four weeks -- when analysts were expecting a drop of only 4,000. But the more closely watched four-week average, which eliminates peaks and valleys, rose to 305,000. Continued claims -- benefits paid to people for more than one week -- rose by 38,000 to 2.47 million.

Wall Street worries

Escalating interest rates, rising oil prices and an unexpected jump in existing home sales had Wall Street denizens wondering about profitability in this type of environment and what the Fed might do to slow it down. As a result, investors locked in yesterday's gains.

Oil prices went on a binge, rising $2.18 to $63.95 a barrel. Although some chalked up the increase to a delayed reaction to yesterday's announced lower crude inventories, the increase was more likely due to supply concerns. Continuing uncertainty regarding militant attacks in Nigeria and the dispositions of Iran and Iraq resulted in the huge price surge. Although weighing on the markets as a whole, increased oil prices boosted shares of oil and oil services companies.

Stocks were somewhat volatile, but closed well off their lows of the session. Declines in transportation, due to higher oil prices, weighed on the markets, but home builders had a great day due to strong February sales. The Dow Jones home construction index rose 3.8 percent. The fact that Home Depot led the Dow Jones industrials with a 1 percent gain was probably not coincidental. Wal-Mart and 3M added 0.9 percent each, but other gains were modest. GM put up big numbers early, on news that it had sold the majority stake in the commercial mortgage division of its GMAC finance unit, GMAC Commercial Holding Inc., but excitement dwindled, leaving the automaker with the smallest of gains.

It was a tough day for the Dow's technology components, with Intel and IBM -- along with Procter & Gamble -- posting 1.4 percent in losses, each. Microsoft, Hewlett-Packard and AIG each shed about 1 percent, rounding out the list of the Dow's biggest losers.

An upgrade of Yahoo! sent its shares soaring 3.5 percent, but the increase was limited to that stock. Adobe Systems warned of an earnings miss that affected others in the software sector, sending the Goldman Sachs software index down. Outside of Yahoo!, Sun Microsystems was one of the few big caps to have a good day, adding 1.3 percent. Oracle, which rose 2.7 percent yesterday, gave almost half of it back, falling 1.5 percent on the session.

As of 4 p.m. EST:

The Dow Jones industrial index closed down 47.14 points (-0.42 percent) to 11,270.29; the Nasdaq composite lost 3.2 points (-0.14 percent) to 2,300.15, and the Standard & Poor's 500 index fell 3.37 points (-0.26 percent) to 1,301.67.

The 30-year Treasury bond closed down 16/32 in price with the yield rising to 4.75 percent, from 4.72 percent on Wednesday.

The 10-year Treasury note closed down 9/32 in price with the yield rising to 4.73 percent, from 4.70 percent on Wednesday.

The five-year Treasury note closed down 5/32 in price with the yield rising to 4.72 percent, from 4.69 percent on Wednesday.

The two-year Treasury note closed down 2/32 in price with the yield rising to 4.76 percent, from 4.74 percent on Wednesday.

At 4 p.m. EST, average mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year conventional fixed-rate mortgage was at 6.126 percent, up from 6.117 percent on Wednesday.

The 15-year conventional fixed-rate mortgage was at 5.749 percent, up from 5.735 percent on Wednesday.

Coming up:

The week ends with two reports: new home sales and durable goods orders, both for February. Sales of new homes, which account for about 15 percent of all home sales, are expected to edge downward to an annual rate of 1.21 million units. This is a 1.62 percent decline from the January reading of 1.23 million units. Although these numbers will be watched to determine the strength of the housing market, they carry less weight than do existing-home sales.

Orders for durable goods -- big-ticket items meant to last more than three years -- are expected to rise 1.5 percent. This would be a giant leap from the 10.2 percent decline reported in January. A sharp drop in aircraft orders skewed those numbers, which had been strong the previous three months. This indicator is based on previously released data, so it offers few surprises. It does, however, serve as a barometer for business investments.

Although Treasury yields ticked up a couple of basis points today, the move was not strong enough to influence mortgage lenders to change their rates. It is therefore likely that rates will hold near present levels into Friday and the weekend, as well.

Carolyn Siegel

Carolyn@interest.com

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