4/22 - 4/26


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Fed Comments

We heard from several Fed members last ​week, all voicing their thoughts on waiting ​to cut rates. Chicago Fed president, ​Austan Goolsbee, said that progress on ​inflation has stalled and that it makes ​sense to wait before cutting rates. He said ​that you never want to overreact to one ​reading, but the last three readings cannot ​be ignored. His comments are significant ​as he has been one of the more dovish Fed ​members, and even he wants to wait to ​cut rates now. You can’t really blame the ​Fed members, as inflation has not been ​good the last three months.

Sales Representative Showing the Value of the House

New Home Sales

Treasury Program

New Home Sales, which measures signed contracts on new ​homes, rose 8.8% in March, stronger than estimates. There was a ​negative revision to last month, so when factoring that in, sales ​were really up about 5% - which is still great.

There were 477k new homes for sale at the end of March, up ​from 465k in February. At the current pace of sales, there is an ​8.3 month’s supply, which is down from 8.8. However, only ​89,000 are completed, and when looking at the pace of sales vs ​homes that are completed (available supply), there is only 1.53 ​months’ supply, down from 1.62 in February.

The median home price was reported at $430,700, which is up ​almost 6% from the previous report. The median home price is ​down 2% from last year, but that’s due to the mix of sales. The ​media tried to say that the median home price is down because ​builders are reducing pricing, which is untrue as the median ​home price rose month over month and is only down YoY due to ​the mix of sales.

According to the NAHB 24% of builders cut home prices in ​March, which is down from 36% in December and 30% this time ​last year. We also got the data for April, which is trending lower ​to 22%. There is also some level of incentive, but this shows less ​price reductions are the trend and regaining pricing power.

The US Treasury announced that they will be ​performing buybacks in a matter of days to make ​the Treasury market more liquid and resilient. We ​know there has been a ton of paper coming to ​market because of the debt we continue to amass ​as a country. While it’s unclear as to the level of ​the buybacks, this is a good thing for rates as the ​Treasury will be absorbing some of the supply ​coming to market.

This also comes ahead of the Fed potentially ​slowing down their balance sheet reduction. ​Powell said that the Fed would taper their balance ​sheet reduction “fairly soon”, which could mean ​the May 1 meeting or June meeting. This could ​mean they will start to buy back $30B per month in ​Treasuries, also absorbing a lot of the supply out ​there, which would be great for rates.

There were two treasury auctions this week – the ​2-year Auction, and a record high $70B 5-year ​Auction.

Durable Goods ​Orders

Durable Goods Orders in March rose 2.6%, in line ​with estimates. Last month’s reading of 1.4% was cut ​in half to 0.7%, tempering the gain.

A lot of the gain was due to aircraft orders, because ​when you strip out transportation, Durable Goods ​Orders were only up 0.2%, which was lower than ​anticipated.

Core Durable Goods also rose 0.2%, as expected, ​but last month’s figure was revised lower by 0.3%. ​The entire first quarter has only showed three tenths ​increase, and YoY orders are down 0.8% showing ​that this index has flatlined, capital spending is ​tepid, and it points to a slower economy.

Mortgage Applications

Housing Starts. basement. Construction.

The MBA released their Mortgage Application data for last ​week, showing that purchases decreased 1% last week. ​Purchases are now down 15% from this time last year.

Refinances fell 6% last week and are up 3% from last year. ​Interest rates rose from 7.13% to 7.24%. Rates are about 0.7% ​higher than this time last year.

Q1 GDP (advanced or first ​reading)

The first reading on Q1 GDP showed that the US economy grew by ​1.6%, which was well below the 2.5% estimate. Looking at the ​components, personal spending was a miss, rising by 2.5% vs. the ​3% expected, and all the spending gain was from spending on ​services.

Pending Home Sales

Pending Home Sales, which measures signed contracts on existing homes, rose 3.4% ​in March, which was much stronger than the 0.3% gain expected. The level of sales ​is the strongest in 13 months and follows a 1.6% rise in February, showing that activity ​is picking up in the home spring buying season. Sales are now flat YoY, which is a ​big improvement from -7% in the previous report.

An increase in inventory and eventual decline in mortgage rates will only boost these ​figures.

The NAR forecasts that housing starts will rise this year and much more in 2025, ​leading to an increase in existing sales of 9% this year and 13% in 2025.

Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the ​first time, fell 5,000 to 207,000. This number continues to be very low and pressured Bonds, ​as it shows the labor market is tight and there is a reduced number of layoffs.

The data does appear to have some issues, as it’s been so stable in recent months ​that it has many economists questioning the accuracy of the report. Additionally, with ​so many companies offering severance, it’s likely undershooting the actual number of ​layoffs, as those individuals are not going to file and may find a new job within that ​period.

Continuing Claims, or those that continue to receive benefits after their initial claims, fell 15k ​to 1.781M. There was also a negative revision to the previous week, bringing both readings ​below 1.8M. Nonetheless, continuing claims have remained near some of the highest levels ​we have seen since November 2021 and does show that once you are let go and continue to ​receive benefits, it’s becoming harder to find a new job. Although it appears employers are ​doing their best to hold onto the workers they have.

CoreLogic Loan

Performance Insights

CoreLogic reported that loan performance in January and those 30-days or ​more remained at 2.8%.

Those 90+ days delinquent fell to 0.9% from 1%, while those in foreclosure ​stayed just off the lowest level on record at 0.3%. Mortgage Loans are still ​performing well, even though we are seeing delinquencies tick up on credit ​cards and auto loans.

Personal Consumption ​Expenditures (PCE)

The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that Headline or all-in ​inflation rose 0.3% for the month, which was in line with estimates. YoY inflation increased from 2.5% to 2.7%, which ​was one tenth hotter than expected. Driving the headline higher was energy costs, which rose by 1.45%. Headline ​inflation has now gone in the wrong direction and moved higher in the last few months – not what we want.

The core rate, which the Fed focuses on and strips out food and energy prices, rose 0.317% last month, which was close ​to expectations. Due to a higher revision to the previous month and rounding, YoY core inflation remained at 2.8%, and ​was expected to fall to 2.7%. While this was a miss, it was still better than feared after yesterday’s GDP report and ​Bonds had a relief rally. The bottom line still remains that inflation progress has stalled and it will be very hard for the ​Fed to cut rates based on inflation alone and it will likely take a higher unemployment rate.

Personal income was up 0.5% last month, while spending rose 0.8%. Consumers continue to spend beyond their means, ​causing the savings rate to fall to 3.2% - the lowest level since October 2022. Eventually, one would expect spending ​to fall off and slow as you can only spend so much on credit and deplete savings so much.