4/15 - 4/19


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Retail Sales

Retails Sales for the month of March rose ​0.7%, stronger than the 0.3% expected. There ​were also upward revisions to February, ​bringing the figure from 0.6% to 0.9%.

When stripping out autos and gas, sales rose ​1%. The core retail sales, which gets plugged ​into GDP, rose 1.1%, much stronger than the ​0.4% expected. Again, we saw revisions, ​reversing the trend in core sales. Two months ​ago this figure was -0.3%, and last month it ​was 0% - pointing to signs that the consumer ​may be coming under pressure and things ​could be slowing down.

Last month was revised higher from 0% to ​0.3%, and the 4/15 figure was 1.1%. Because ​this was so strong, it’s likely GDP estimates get ​revised higher. We also the probabilities of a ​rate cut get pushed further back, with July ​now well under 50%. Bonds sold off sharply ​after the release.


Rental Report

CoreLogic released their Rental Report for ​the month of February, showing that rent ​prices are up 3.4% YoY, which is a pretty ​big increase from 2.6% in the previous ​report and the highest year over year level ​in 10 months.

The latest CPI report showed that shelter ​costs rose by 5.7%, which is 2.3% higher ​than what we are actually seeing because ​of the lag. When you multiply that ​difference by the shelter weighting in Core ​CPI, it shows that shelter is being ​overstated by roughly 1%. That would mean ​that Core CPI should be closer to 2.8% ​instead of 3.8%. Doing the same exercise ​with the Fed’s favorite measure, PCE, and ​you get 2.3% instead of 2.8% being ​reported.

Sales Representative Showing the Value of the House

NAHB Housing Market ​Index

The April NAHB Housing Market Index, which measures ​builder confidence, remained at 51, which is the highest ​level in 9 months and is in expansion territory.

Here is a breakdown of the internal metrics:

  • Current Sales: rose 1 points to 57 (expansion)
  • Future Expectations: fell 2 points to 60 (expansion)
  • Buyer Traffic: rose 1 points to 35 (contraction, but ​highest level since Aug)

Future sales remained in expansion, but fell two points ​because of the higher mortgage rate outlook. Buyer ​traffic continues to slowly rise – Overall, this was a good ​report.

According to the NAHB 22% of builders the percent of ​builders cut home prices, down from 24% last month and ​36% in December. The use of sales incentives ticked down ​to 57% in April from a reading of 60% in March. This shows ​that builders have a bit more pricing power and speaks to ​strength.

Housing Starts ​and Permits

Housing Starts fell almost 15% in March after a nice ​gain in February. The annualized pace has fallen ​from 1.55M units to 1.32M. Starts are now down 4.3% ​YoY. Single-Family Starts, which are most important, ​fell 12.4% to a 1.02M unit annualized pace. SF ​Starts are now up 21% YoY.

There were just 299,000 multi-family starts, which ​is the lowest level since 2017 not including Covid. ​There is a near record high 957k multi-family units ​under construction, which should add some supply ​and ease rental pricing pressures.

Building Permits, which is the future supply, fell ​4.3% to a 1.46M unit annualized pace and are now ​up 1.5% YoY. Single-Family Permits fell almost 6% to ​0.97M unit annualized pace and are up 17.4% YoY.

Completions fell 13.5% last month to a 1.47M unit ​annualized pace, while Single-Family fell 10.5% to a ​0.95M unit pace.

Bottom line – We may see some easing in the rental ​market in the near term, but home prices should be ​well supported as there is not enough supply coming ​to market.

Powell's Comments

Housing Starts. basement. Construction.

Federal Reserve Chair Jerome Powell spoke to a policy forum focused ​on U.S.-Canada economic relations, where he said he was no longer ​confident that inflation is moving toward the Fed's 2% target. He said it ​will likely take longer to achieve that confidence, signaling that the ​timing of rate cuts will likely be delayed and that rates will be higher for ​longer until confidence is restored. Powell also said that policy is ​currently appropriately restrictive, making discussions on whether or not ​to restart rate hikes less likely.

Mortgage Applications

The MBA released their Mortgage Application data showing ​that purchases increased 5% last week. Purchases are still ​down 10% from this time last year.

Refinances rose 0.5% last week and are up 11% from last year. ​Interest rates rose from 7.01% to 7.13%. Rates are about 0.75% ​higher than this time last year.

Cure for Higher Rates is Higher Rates

Higher rates could be a reason for the strong 20-year Auction yesterday and rebound we saw in Mortgage Bonds.

Imagine you or a bank has a Bond portfolio, where you are searching for yield. There are short term yields, that may not last ​that long based on what the Fed does, and longer term yields that you can lock in for a longer period of time.

At the end of last year and beginning of this year, we saw yields start to come down – This happened because you could ​have put your money in a money market account around 5.25%, but the Fed indicated that they were going to cut rates. When ​they do, the money market and short-term yields come down right away. So instead of getting 5.25% for a short period of ​time, many decided they will take a slightly lower rate of return and invest in things like the 10-year Treasury, locking in that ​rate for a much longer period of time. This is part of the reason why yields dipped beneath 4% earlier in the year.

Since the Fed has indicated that they are not confident that inflation is coming down to target and rate cuts have been ​pushed to later in the year, more investors have invested in money market accounts as their rate will likely now be protected ​for longer with the Fed waiting several more months to cut. But as a result of the inflation data and Fed’s commentary, long ​term yields have risen. We may now be starting to see investors decide that 4.62% on the 10-year is a pretty good return and ​not far off what they could get in a money market account, but that return is protected for a much longer period of time. And ​the Fed has not indicated that they are going to hike, they still believe they will cut, just later. If we see this trend play out and ​more demand come into investments like the 10-year since yields are now higher, it could help push yields lower. Hence the ​cure for higher rates being higher rates.

Existing Home Sales

Existing Home Sales, which measures closings on existing homes, fell 4.3% in March ​to an annualized pace of 4.19M units, which was slightly better than market ​estimates. Sales are now down 3.7% YoY.

Inventory increased 4.7% month-over-month to 1.11M units, which is a good thing ​because there is very limited supply, and this could lead to more sales. There is a ​3.2-month supply of homes, which is tight but up from 2.9 months, because 4.6 ​months is considered normal.

The median home price was $393,500, up 1.4% from last month and 4.8% from last ​year. Homes remained on the market for 33 days on average, down from 38 days in ​February.

First-time homebuyers accounted for 32% of sales, which is up sharply from 26% in ​the previous report. Cash buyers accounted for 28% of sales, down from 32%. ​Investors made up 15%, down from 21% in last month’s report. 29% of homes sold ​above the list price, a big jump from 20% in February. That’s almost one in three ​homes.

Overall, although there was a decline in the pace of sales, some of the internals are ​showing strength and signaling that the spring home buyer season is here. Homes ​remained on the market for a shorter period of time and a greater number of homes ​sold above the list price, signaling competition.

Mortgage Interest Rate

Initial Jobless ​Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for ​the first time, remained at a very low level of 212,000.

Continuing Claims, or those that continue to receive benefits after their initial claim, ​rose 2,000 to 1.812M and still remains around some of the hottest levels we have seen ​since November 2021.

The BLS has a ton of components that they utilize in coming up with their jobs figures, ​one of which is the “sample week” of initial jobless claims. The sample week is the week ​encompassing the twelfth of the month, which is today’s report since it’s measuring ​claims last week. From this one component, it would point to strong job growth since it ​was so low at 212,000.

Williams Comments

It appeared that the move lower in Mortgage Bonds prices was over, as we had a ​very nice day on Wednesday. But on Thursday, NY Fed President John Williams spoiled ​the party with his comments, causing a selloff in Bonds.

Williams said that he would not take further rate hikes off the table and if the data ​(inflation) is telling the Fed that they need to have higher rates to achieve their goals, ​he would obviously want to do that. While he said this was not his base case, the Bond ​market interpreted this as negative news and a further lack of confidence that inflation ​will move lower.

He also said that he has no urgency to cut rates and believes monetary policy is doing ​what they would like to see – He believes monetary policy is in a good place.