Morning Report: Soft Housing Data

Vital Statistics:

 LastChange
S&P futures3,87136.15
Oil (WTI)100.771.95
10 year government bond yield 3.00%
30 year fixed rate mortgage 5.78%

Stocks are higher this morning as earnings continue to come in. Bonds and MBS are flat.

Homebuilder sentiment collapsed in July according to the NAHB / Wells Fargo Housing Market Index. “Production bottlenecks, rising home building costs, and high inflation are causing many builders to halt construction because the cost of land, construction, and financing exceeds the market value of the home,” says NAHB chairman Jerry Konter. “In another sign of a softening market, 13% of builders in the HMI survey reported reducing home prices in the past month to bolster sales and/or limit cancellations.”

The issues surrounding inflation and supply chain bottlenecks are well-known, however it looks like demand is softening, which is new. Fears of a recession, along with high prices and rates are causing potential buyers to put plans on hold for the moment. It will be interesting to see the cancellation rates when the builders start reporting.

Housing starts disappointed again, falling 6.3% YOY to a seasonally adjusted annual rate of 1.55 million. Building Permits were flat at 1.66 million. It looks like activity is primarily slowing in the West, where prices have been soaring. Single family starts are still holding up.

The stock market has noticed the issues surrounding homebuilding, with the S&P SPDR Homebuilder ETF (XHB) down 31% YTD.

The Mortgage Bankers Association reported that applications for new home purchases fell 12% YOY in June. “Higher mortgage rates and heightened economic uncertainty cooled borrower demand in June, leading to new-home purchase applications declining to the lowest level since April 2020,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Additionally, new residential construction and permitting activity weakened from March through May, reducing the number of homes available for home buyers. MBA’s estimate of new home sales for June fell to a pace of 620,000 homes, a 15 percent drop of over 100,000 units compared to May.”

Author: Brent Nyitray

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

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