August 16th, 2022 - Market Update
Current position: Carefully floating
Stocks and Bonds are both trading near unchanged levels so far this morning.
According to Redfin, 44% of homes sold in bidding wars, with an average of 3.5 offers in July. While this is lower than the peak this of 70% in January, it's still quite strong.
If you look back to 2019, there were only 10% of homes in bidding wars, and we know what happened after that. There were listings that saw price reductions, but everyone we speak to says the same thing - If the home is priced realistically, they are moving fast.
While rates are higher and demand is lower in housing, there are a lack of better options - You have to live somewhere. And rents are still elevated.…
CoreLogic's June Rental Index showed that rental increases moderated slightly on a year over year basis from 13.9% to 13.2%, but still remains nearly double that of a year ago and still near a record level.
Looking at new construction, Housing Starts in July were down almost 10% to a 1.45M unit pace, which was worse than the 2.5% decline expected. Starts are down 8% year over year. Single-family starts, which are most important, were down 10% last month at a 916M unit pace. They are now down 18.5% year over year. So while interest rates are higher, and demand is lower, supply remains tight.
The slowing new construction and supply we are seeing is going to hurt economic activity, but from a price standpoint, will be somewhat supportive. As demand is declining, so is supply. This is very different from the housing bubble, where demand was waning, but supply of new homes was significantly increasing.
Housing Permits, which is the future supply, were down 1% last month at a 1.67M unit pace, but single family were down more significantly, dropping by 4% last month to 928k units and 12% vear over year.
Housing units authorized, but not yet started, were up 5% last month and 18% year over year, speaking to the backlog in building. Additionally, Competitions were up 1% overall at a 1.42M unit annualized pace, while single family Completions were down 1% last month at a 1M unit annualized pace. With household formations around 1.7M annualized, completions are not keeping pace.
Tomorrow brings Mortgage Apps, Retail Sales, a 20-year Bond Auction, and the Fed Minutes from the last Fed meeting. Thursday we will get the important Existing Home Sales report for July.
Mortgage Bonds continue to trade in a narrowing pennant formation and are being squeezed in a narrow range between support at the 25-day Moving Average and overhead resistance at the 100-day Moving Average.
While we are testing the lower bound of the pennant, we do want to give Bonds a chance to hang on, but if we break too far below, you will be hearing from us.
Begin the day very carefully floating.
Source: MBS Highway
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