Morning Report: Housing starts hit a record

Vital Statistics:

 LastChange
S&P futures38850.3
Oil (WTI)53.240.04
10 year government bond yield 1.11%
30 year fixed rate mortgage 2.86%

Stocks are flat this morning on no real news. Bonds and MBS are flat as well.

Housing starts came in at 1.67 million, while building permits rose to 1.7 million. This is the fastest pace since the peak of the bubble years in 2006. For the full year of 2020, housing starts rose 1.38 million, which was 9% above the 2019 number.

You can see in the chart above that we are still kind of around historical averages, although they should trend upward with population growth. That chart goes back to 1960, when the US population was 181 million. We are at 331 million now. We will get existing home sales tomorrow, and the NAR has been reporting for-sale inventory is at record lows. The homebuilders have a lot of wood to chop in order to get inventory back to normal levels.

Initial Jobless Claims came in at 900k last week, which was a decline from the previous week.

The FHA said it will approve mortgages for DACA applicants. (or kids who’s parents are in the US illegally). It will be interesting to see how the government can push FHA lending going forward. They want the banks to do more of it, but the banks are understandably gun-shy after the Obama Admin used the False Claims Act to extract billions in settlements. I suspect we will be back to the Obama-era policy of cognitive dissonance: How hard can we kick the banks while simultaneously encouraging them to make more mortgages?

Homebuilder sentiment slipped on rising materials prices. “Despite robust housing demand and low mortgage rates, buyers are facing a dearth of new homes on the market, which is exacerbating affordability problems,” said NAHB Chairman Chuck Fowke. “Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots and labor shortages that delay delivery times and put upward pressure on home prices. They are also concerned about a changing regulatory environment.”

The Biden Administration is going to have to walk a fine line with respect to building more homes. Housing shortages are most acute in deep-blue urban areas where environmentalism and NIMBY-ism conspire to keep supply low. In other words, he is going to have to buck his own party’s base on this.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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