Morning Report: Housing starts climb

Vital Statistics:

	Last	Change
S&P futures	3438	16.6
Oil (WTI)	40.92	0.39
10 year government bond yield		0.78%
30 year fixed rate mortgage		2.87%

Stocks are higher as third quarter earnings are turning out to be better than expected. Bonds and MBS are down.

Homebuilder sentiment reached a record in September, according to the NAHB Housing Market Index. Tight supply plus strong demand has created a perfect environment for the builders. Increasing input costs, especially lumber and labor do remain an issue, however lower rates are allowing them to pass on those added costs.

Housing starts increased 2% MOM and 11% YOY to come in at 1.42 million. Building Permits rose to 1.55 million.

Delinquencies are increasing, according to CoreLogic. In July, 6.6% of all loans were 30 days or more delinquent, which was up by 2.8 percentage points compared to a year ago. The 120 day rate rose to 1.4%, which is the highest in 21 years. Note that these are July numbers, and things have probably improved since then.

Market strategist Jim Bianco thinks inflation may be coming sooner than expected. The COVID-19 crisis has restricted supply of many goods, which is causing shortages, which lead to price hikes. “The Fed is like a post in the ground and the market is like a horse tied to that post,” he said. “When that horse gets spooked by something — call it inflation — it could tear the post right out of the ground and run wherever it wants. It will run, and the Fed might have no choice but to follow it.” FWIW, the Fed would be delighted to see a return of inflation, but the global bond markets are “markets” in name only. Central Bankers are in full control of them and the bond vigilantes will struggle to make a dent given the Fed’s daily purchases of Treasuries. Also, if you sell Treasuries, what do you invest in? Bunds at -61 basis points? Japanese government bonds at 2 basis points? Tesla? FWIW, I do see hints of early 70s inflation, where product sizes are shrinking while maintaining the same price, however inflation is more than just what you see at the supermarket.