Morning Report: Housing starts miss estimates by a wide margin

Vital Statistics:

 LastChange
S&P futures4,1583.8
Oil (WTI)66.000.07
10 year government bond yield 1.65%
30 year fixed rate mortgage 3.20%

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

Housing starts came in at 1.57 million in April, which was way below the 1.7 million Street expectation. This is 10% below the March level of 1.73 million. Building Permits came in flat at 1.7 million. Not sure what drove the decline in starts, but it is a surprise. We might see this get revised away in later releases.

The NAHB Housing Market index was flat at 83 in May as well. “Builder confidence in the market remains strong due to a lack of resale inventory, low mortgage interest rates and a growing demographic of prospective home buyers,” said NAHB Chairman Chuck Fowke, a custom home builder from Tampa, Fla. “However, first-time and first-generation home buyers are particularly at risk for losing a purchase due to cost hikes associated with increasingly scarce material availability. Policymakers must take note and find ways to increase production of domestic building materials, including lumber and steel, and suspend tariffs on imports of construction materials.” It may turn out that lack of materials was the reason for the miss in the housing starts number.

Loans in forbearance fell to 4.22% of all mortgages last week according to the MBA. “The rate of new requests dropped to 4 basis points, which is the lowest level since last March,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Of those in forbearance extensions, more than half have been in forbearance for more than 12 months.”

The Home Despot beat earnings estimates as revenues rose 33%. I am sure higher lumber prices are playing into that number. It does speak to the shortage of single family homes – if you cannot find a suitable move-up property, the next best option may be a home renovation. I would be interested to see if HomeStyle and 203k loan volume is up on this. That said, with labor shortages etc, I would imagine managing the construction process would be much more difficult these days.

Dallas Fed Chairman Robert Kaplan thinks we could possibly see a rate hike by the end of 2022. “I haven’t seen anything from that point to today that’s changed my view,” Kaplan said during a virtual town hall conversation organized by the bank. The U.S. labor market has a “good chance” of being at full employment by then and of having inflation at the central bank’s 2% target, Kaplan said.

The Fed Funds futures are still handicapping an 11% chance of a rate hike by the end of 2021.

Author: Brent Nyitray

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

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