Morning Report: GDP disappoints

Vital Statistics:

S&P futures4,55713.2
Oil (WTI)81.66-1.01
10 year government bond yield 1.56%
30 year fixed rate mortgage 3.30%

Stocks are flattish this morning despite a disappointing GDP print. Bonds and MBS are up.

Economic growth slowed to 2% in the third quarter, according to the Bureau of Economic Analysis. This was well below expectations, and seems to confirm that the economy is slowing down. The Chicago Fed National Activity Index earlier this week confirmed that the economy is growing below trend.

Initial Jobless Claims fell to 281,000. This is close to getting back to normalcy, however we are still elevated compared to pre-COVID.

New Home Sales fell 18% YOY to a seasonally-adjusted annual rate of 800,000. At the end of September, there were 379,000 units in inventory, which represents a 5.7 month supply. The median sales price rose 19% YOY to $408,800.

Durable Goods orders fell 0.4% in September. Ex-transportation, they rose 0.4%. Core Capital Goods (a proxy for capital expenditures) rose 0.8%. I wonder if the labor shortages are encouraging businesses to invest more in productivity-enhancing technology.

Mortgage applications rose 0.2% as purchases rose 4% and refis fell 2%. “Mortgage rates increased again last week, as the 30-year fixed rate reached 3.30 percent and the 15-year fixed rate rose to 2.59 percent – the highest for both in eight months. The increase in rates triggered the fifth straight decrease in refinance activity to the slowest weekly pace since January 2020. Higher rates continue to reduce borrowers’ incentive to refinance,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Purchase applications picked up slightly, and the average loan size rose to its highest level in three weeks, as growth in the higher price segments continues to dominate purchase activity. Both new and existing-home sales last month were at their strongest sales pace since early 2021, but first-time home buyers are accounting for a declining share of activity. Home prices are still growing at a rapid clip, even if monthly growth rates are showing signs of moderation, and this is constraining sales in many markets, and particularly for first-timers.”

Zillow is pausing its iBuying program. The problem is that it has a backlog of inventory has swollen its balance sheet. Zillow’s program basically allowed homeowners to sell their property to the company, which then would make any repairs, stage and sell the home. This was popular in many communities where bidding competition was fierce, and a non-contingent offer could help carry the day. Zillow would charge a fee of something like 7.5% for this service.

Shortages of labor and materials are making it harder for the company to flip and sell their homes, and debt has been building up to finance the activity.


Author: Brent Nyitray

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

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