August 18th, 2022 - Market Update
Current position: Carefully floating
Stocks are mixed and Mortgage Bonds are higher to start the day.
In housing news, Existing Home Sales, which measure closings on existing homes, showed that sales were down 5.9% in June at a 4.81M annualized pace, which was pretty in line with expectations.
This likely measured activity in May and June, including the peak in rates we saw in June. On a year over year basis, sales are down 20%, which is leading many, including NAR's Lawrence Yun, to say that we are in a "housing recession.
There is a big difference between a housing activity recession, which we are clearly in, and a home price recession. Activity has no doubt slowed, but for a consumer who is buying a home and may be scared by the media headlines, home prices are still being supported by low inventor and there are signs that demand is still strong if homes are priced correctly.
Inventory increased slightly from 1.26M to 1.31M, but a smaller increase than we have been seeing, possibly starting to crest like we see every year around this time.
There is now a 3.3 Month's supply of homes, which is tight, because 6 months is considered balanced. But if you look at active listings, there are only 747,000, which means that 43% of the "inventory" in the Existing Home Sales report is under contract and not truly available.
This speaks to demand, as normal market has 25% of inventory under contract. And while there are reports that homes are sitting longer on the market, if they are priced correctly, they are flying. Average days on market remained at a blistering 14 days.
First Time Home Buyers have accounted for 29% of sales, down from 30% in the previous report. Cash buyers accounted for 24% of sales, down from 25%, while investors purchased 14% of homes, which is down from 16%. Foreclosures and short sales accounted for roughly 1% of all transactions.
Yesterday, the Fed Minutes showed that Fed members acknowledged a slowdown in housing, business investment, manufacturing, and spending. Many participants also noted tentative signs of a softening outlook for the labor market. They also made it pretty clear they are going to be hiking in September, likely by 50bp, as inflation is unacceptably high.
This would get the Fed Funds Rate up to 3% - Following September, the Fed will likely be data dependent, as they mentioned at some point it would be appropriate to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.
The Atlanta Fed released their new projection for Q3 GDP, and while it is positive at 1.6%, that has been revised lower from 1.8% earlier in the week and 2.5% last week. The estimates are quickly evaporating and may continue to do so as more data is released.
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, decreased by 2,000, and with the 10,000 lower revision to the prior week, claims are now at 250,000.
While there was a slight reduction in claims, this is the second print in a row above 250,000, the first time that has happened since November. Continuing Claims, which measures those who continue to receive benefits after their initial claims, rose 7,000 to 1.44M.
Mortgage Bonds held at support yesterday, and are bouncing higher off the 100.603 Fibonacci level this morning. Bonds are now trading just beneath the next ceiling at the 25-day Moving Average.
The 10-year has moved lower and is trying to remain beneath its 100-day Moving Average.
With support holding, we can continue carefully floating.
Source: MBS Highway
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