THE FULL SCOOP

*POWERED BY MBS HIGHWAY*

9/16 - 9/20

Retail Sales

Retail Sales in August rose 0.1%, which was better than estimates looking ​for -0.2%. Additionally, last month’s figure was revised higher by one ​tenth to 1.1%. A likely reason why last month’s reading was so hot was ​Prime Day from Amazon, where we saw $14.2 Billion in sales in that day ​alone. When stripping out autos and gas, sales rose 0.2%.

The Core Retails Sales figure, which gets plugged into GDP, rose 0.3%. ​Last month’s reading was revised higher by a tenth to 0.4%. This was a ​beat and may lead to some higher GDP estimates.

Housing Starts and Permits

Housing Starts, Permits, and Completions all saw a nice rise in August. Multifamily ​completions rose sharply, signaling more multi-family rental supply coming to ​market, which should help with rental prices and hopefully find it’s way into the ​inflation figures.

Single Family starts rose 16% to 1M units, which will add some much-needed single ​family inventory. Permits rose nearly 5%, coinciding with the increase in builder ​confidence in the future, thanks to lower rates.

NAHB Housing Market Index

The September NAHB Housing Market Index, which measures builder ​confidence, rose two points to 41, which is the first improvement we have ​seen in 6 months. Looking at the internals:

Current Sales: rose 1 point to 45

Future Expectations: rose 4 points to 53

Buyer Traffic: rose 2 points to 27

With the overall index below 50, builders are still pessimistic, but we saw ​improvements in each component, and they are clearly feeling better about ​the housing market over the next six months with Future Expectations jumping ​4 points and back into expansionary territory above 50.

The NAHB Chairman Carl Harris said, “Thanks to lower interest rates, builders ​now have a positive view for future new home sales for the first time since ​May 2024. However, the cost of construction remains elevated relative to ​household budgets, holding back some enthusiasm for current housing market ​conditions. Moreover, builders will face competition from rising existing home ​inventory in many markets as the mortgage rate lock-in effect softens with ​lower mortgage rates.”

The share of builders cutting prices dropped in September for the first time ​since April, down one point to 32%. Additionally, the average price reduction ​was 5%, the first time it has been below 6% since July 2022. Lastly, the use of ​sales incentives fell to 61% in September, down from 64% in August. All of ​these metrics show things are improving from the demand side.

Initial Jobless Claims

Mortgage Application Data

Initial Jobless Claims, which measures individuals filing for ​unemployment benefits for the first time, fell 12,000 to 219,000, ​which was lower than estimates.

Continuing Claims, which measures Individuals continuing to receive ​benefits after their initial claim, fell 14,000 to 1.829M, which is still ​near the highest level since November of 2021. This continues to ​support the slowdown in hiring as it’s harder to find a job once let ​go and people remain on benefits for longer.

As for the recent decline in continuing claims, it’s unclear if that’s ​because people are getting hired or their benefits are expiring, but ​with the slowdown in hiring, it’s likely expirations.

The MBA (Mortgage Bankers Association) reported that interest rates dropped from 6.29% to ​6.15% last week and were 1.125% lower than this time last year. Purchase volume rose 5% last ​week, rising for the third week in a row and finally starting to show some momentum. ​Remember, it takes a while for a buyer to notice rats are lower, find a home, and then put in ​an application, so this should continue to rise as rates are more favorable. Purchases are now ​flat year over year.

Refinance activity rose 24% last week and is up a strong 127% year over year. Refinances ​made up 51% of total application volume, up from 47%.

Fed Breakdown

The Fed cut rates 50bp yesterday to a target range of 4.75% to 5%, with the effective Fed Funds Rate at 4.875%. Deciding to go 50bp instead of 25bp shows that the Fed wanted ​to front load rate cuts and could signal they feel they were behind the curve and that they are somewhat concerned with the economy, specifically unemployment…even though ​they tried to stave that off by talking about how the economy was solid.

The vote was almost unanimous, with only Bowman dissenting – She is the first one to dissent in 19 years. The Statement showed that the Fed has gained further confidence on ​inflation and that job gains have slowed. They still feel the economy is growing at a solid pace and it appears that they believe they can stick the soft landing, meaning they can ​avoid recession.

Their Summary of Economic Projections shows that the Fed is forecasting 50bp of additional cuts this year and another 100bp of cuts next year. They don’t expect to see more ​progress on core PCE, as their year end target is 2.6%...which is the current level. They don’t feel they will get to their 2% goal until 2026…with inflation getting to 2.2% next year.

In Powell’s press conference he said that 50bp is not the cadence the market should get used to and it was a commitment to not fall behind. He also said that the markets should ​expect the Fed to continue to remove restriction, which means continue to cut rates. He doesn’t see anything that suggests the likelihood of a downturn is elevated.

There were knee jerk reactions to the decision, with Stocks and Bonds initially moving higher, but then ending the day lower. We are seeing Stocks rebound today, setting new all-​time highs.

Existing Home Sales

Existing Home Sales, which measures closings on existing homes, fell 2.5% in August to an ​annualized pace of 3.86M units, which was weaker than estimates. The July reading was revised ​slightly higher, which means that sales are down 2.2% from the originally reported number…still ​a slight miss. Sales were down 4.2% year over year.

This report likely measured people shopping for homes in June and July, before rates made their ​latest leg lower. We expect to see activity pick up in the coming reports as rates have come ​down significantly.

Inventory increased 0.7% month over month to 1.35M units. Inventory is now up 22.7% year over ​year, but is still 27% less than pre-pandemic levels.

There is a 4.2-months’ supply of homes which is still tight because 4.6 months is considered ​normal.

Homes remained on the market for 26 days on average, up from 24 days in July. We also saw ​24% of homes sold above the list price, down from 29% in the previous report, but showing that ​there are still bidding wars in about a quarter of home sales nationwide.

The median home price was $422,600, down 1% from last month, but up 4.2% from last year. ​First-time homebuyers accounted for 26% of sales, down from 29% in the previous report. Cash ​buyers accounted for 26% of sales, down from 27%, while Investors made up 19%, up from 13%.

Fed Explanation

There have been a lot of misconceptions, especially in the media, now ​that the Fed has cut rates. We have seen media outlets showing that ​now that the Fed has cut 50bp, your mortgage rates is 0.5% lower, ​and illustrating how much you would save. Of course, that’s not the ​case and the Fed is not cutting mortgage rates, but rather an ​overnight rate that banks use to lend to one another.

CoreLogic Rental Index

CoreLogic reported that blended rents rose 2.8% year over year in ​July, which is down from 2.9% in the previous report. We continue to ​see market rents prices decline, yet they are not being reflected in ​the inflation reports we receive.

Rents are rising at 5.2% year over year in both the Consumer Price ​Index and Personal Consumption Expenditures reports. Based on the ​2.4% overstatement because of the lag, and the respective shelter ​weightings in each report, CPI would be 2.2% instead of 3.2% and ​PCE would be 2.2% instead of 2.6%.