Morning Report: For-sale home inventory hits a record low

Vital Statistics:

S&P futures4,55026.2
Oil (WTI)86.57-0.43
10 year government bond yield 1.83%
30 year fixed rate mortgage 3.76%

Stocks are higher this morning on no real news. Bonds and MBS are up.

The NASDAQ is officially in correction territory (down 10% from its peak). It is the old adage: Don’t fight the Fed. BTW, the March Fed Funds futures see a 90%+ probability of a rate hike. A month ago, it was only a 43% chance.

Initial Jobless Claims rose to 286,000 last week. I would assume the increase in Omicron cases drove the increase, but if the labor market is softening, the Fed has a big problem on its hands. The labor force participation rate is still well below pre-pandemic levels, which can act like a brake on the economy.

Applications for new home purchases slowed in December, according to the MBA. “Applications to buy a new home slowed in December, while the activity remained tilted to higher-priced homes,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Supply chain challenges, labor shortages and higher materials costs also contributed to last month’s decline, as projects were delayed or cost more to complete. The average loan size set another survey record at $423,102, as these higher costs are pushing sales prices higher.” 

Existing Home Sales fell 4.6% in December, however 2021 was the best year since 2006. The driver of the decrease was inventory again, with only 910,000 homes for sale. This is down 18% from November and 14% from a year ago. This is an all-time low for the series, and represents a 1.9 month supply.

The median home price rose 16% YOY to $358,000. NAR is predicting that home price appreciation will slow to 3% to 5% this year as rising mortgage rates crimp consumer demand. It also sees homebuilding picking up in 2022 and 2023.

IMO, the supply and demand imbalance will be the driver of home price appreciation, not mortgage rates. Rising incomes will offset the increase in rates (in other words, DTIs aren’t going to change all that much), and professional investors will still find these assets attractive, certainly compared to what else is out there.


Author: Brent Nyitray

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

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