Morning Report: Homebuilder confidence falls

Vital Statistics:

	Last	Change
S&P futures	4,589	14.2
Oil (WTI)	86.17	1.03
10 year government bond yield		1.86%
30 year fixed rate mortgage		3.78%

Stocks are higher this morning after yesterday’s major sell-off. Bonds and MBS are flat.

UK inflation came in hotter than expected, which is causing a sell-off in sovereign debt across the world. The German Bund actually ticked a positive 1/10 of a basis point this morning. Inflation must be serious if you can make money lending to the German Government, though the annual interest on a million euro bund probably won’t cover a beer at Hofbrauhaus.

Housing starts rose to 1.7 million units on an annualized basis. Building Permits came in at 1.87 million. Meanwhile, builder confidence slipped due to rising expenses. “Higher material costs and lack of availability are adding weeks to typical single-family construction times,” said NAHB Chairman Chuck Fowke, a homebuilder from Tampa, Florida. “NAHB analysis indicates the aggregate cost of residential construction materials has increased almost 19% since December 2020.” Lumber is up 85% over the past 3 months.

Housing starts are still too low to make up for the supply shortage, however rising mortgage rates, labor costs, and commodity prices are making it difficult. The S&P SPDR Homebuilder ETF XHB is down 9% so far this year.

Mortgage applications rose by 2.3% as purchases rose 8% and refis fell 3%. “Mortgage rates hit their highest levels since March 2020, leading to the slowest pace of refinance activity in over two years,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The 30-year fixed rate reached 3.64 percent and has increased more than 30 basis points over the past two weeks. FHA and VA refinance declines drove most of the refinance slowdown.”

Energy traders are beginning to predict $100 oil this year. The relaxation of COVID restrictions, supply chain issues, and security are all compounding to push up WTI, which is up 14% YTD.