Morning Report: New home sales fall again.

Vital Statistics:

 LastChange
S&P futures4,265-27.25
Oil (WTI)100.061.49
10 year government bond yield 2.75%
30 year fixed rate mortgage 5.34%

Stocks are lower this morning as earnings continue to come in. Bonds and MBS are up.

Durable Goods Orders rebounded 0.8% in March. Ex-transportation they rose 1.1%. Core Capital Goods (a proxy for business capital investment) rose 1%.

Home prices rose 2.1% MOM and 19.4% YOY, according to the FHFA House Price Index. “House prices rose to set a new historical record in February,” said Will Doerner, Ph.D., Supervisory Economist in FHFA’s Division of Research and Statistics. “Acceleration approached twice the monthly rate as seen a year ago. Housing prices continue to rise owing in part to supply constraints.” Home price appreciation is definitely accelerating.

Separately, the Case-Shiller Index rose 20.2% YOY. Note that Case-Shiller is a more broad-based index than FHFA, which only looks at homes which are backed by a GSE / government loan. This excludes jumbos, all-cash sales and non-QM.

Notable MSAs include Phoenix (up 33%), Tampa (up 33%) and Miami (up 30%). “The macroeconomic environment is evolving rapidly and may not support extraordinary home price growth for much longer,” wrote Craig Lazzara, managing director at S&P DJI, in a release. “The post-Covid resumption of general economic activity has stoked inflation, and the Federal Reserve has begun to increase interest rates in response. We may soon begin to see the impact of increasing mortgage rates on home prices.” The median mortgage payment on the median house with a 30 year fixed rate loan is 46% higher (or $550), according to research from Realtor.com. This is cooling demand as we hit the main part of the spring selling season.

New home sales fell 12.6% YOY to a seasonally-adjusted annual pace of 763,000 units, according to the Census Bureau. The median home price rose 21% to $436,700. Shortages of materials and labor make it difficult for builders to focus on starter homes, so they are spending more effort on the luxury sector. After spiking in the early days of the pandemic, new home sales have been on the weak side. Aside from the aftermath of the bubble and the COVID spike, we are at 1997 levels in building.

Consumer confidence decreased in April, according to the Conference Board. “Consumer confidence fell slightly in April, after a modest increase in March,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index declined, but remains quite high, suggesting the economy continued to expand in early Q2. Expectations, while still weak, did not deteriorate further amid high prices, especially at the gas pump, and the war in Ukraine. Vacation intentions cooled but intentions to buy big-ticket items like automobiles and many appliances rose somewhat.”

It is important to note that expectations have been on the decline since early 2021 while the present situation index has been improving. The big question involves consumers’ expectations of their financial situation. If they think inflation will be worse in 6 months, they may accelerate purchases in order to beat the price increases. This would worsen inflation. Conversely if they think the economy is going to weaken, they will defer purchases, which will lower inflation and take some pressure off the Fed. The survey doesn’t ask why consumers feel how they feel, so we’ll have to see how it plays out.

Author: Brent Nyitray

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

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