Morning Report: Strong retail sales report

Vital Statistics:

S&P futures4,6801.2
Oil (WTI)81.220.43
10 year government bond yield 1.63%
30 year fixed rate mortgage 3.27%

Stocks are flattish this morning on no real news. Bonds and MBS are down.

Retail Sales rose 1.7% in October, according to the Census Bureau. On a YOY basis, they rose 16.3%. Gasoline prices were a big driver of the increase. Electronics retailers also saw decent gains. Ecommerce sales were up 4%.

Overall, this is a good start for the holiday shopping season. Note that Walmart reported third quarter numbers this morning. Same store sales rose 9.2%, which is a strong reading, albeit it is an easy comparison to a year ago.

Industrial Production rose 1.6% MOM in October, while manufacturing production rose 1.2%. Capacity Utilization rose to 76.4% from 75.8%.

Applications for new home mortgages rose 6% from September, but are down 15% compared to a year ago. “The strong monthly gain puts MBA’s estimate of new home sales at its strongest pace since January,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Purchase activity continues to be dominated by higher loan balance transactions, which pushed the average new home loan size up to over $412,000, another new record in the survey. Recent U.S. Census data show an increasing share of new sales are for homes yet to be built or still under construction, and a shrinking share of completed homes. Housing demand remains strong, and buyers are making quick decisions in a still very competitive market.”

Renters who are exiting from the eviction moratorium are seeing a 10% increase in asking rent. “Single-family rental vacancy rates remained near 25-year lows in the third quarter of 2021, pushing annual rent growth to double digits in September,” said Molly Boesel, principal economist at CoreLogic. “Rent growth should continue to be robust in the near term, especially as the labor market improves and the demand for larger homes continues.”

Rent growth was strongest in Miami, rising 27%. Phoenix and Las Vegas rose 20% and 16% respectively. On the other side was the Northeast, where rents rose under 5% on average.

Real Estate investors bought 18.2% of homes in the third quarter, according to Redfin. This has made it difficult for homebuyers who have to compete with these folks. We are seeing lots of institutional money flood into the space as the potential returns in rentals dwarf anything else in the financial markets.


Author: Brent Nyitray

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

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