Morning Report: Housing starts fall

Vital Statistics:

S&P futures3,919-26.50
Oil (WTI)79.970.47
10 year government bond yield 3.41%
30 year fixed rate mortgage 6.08%

Stocks are lower as investors fret about the state of the economy. Bonds and MBS are up.

Housing starts fell 1.9% MOM and 21.8% YOY to an annualized rate of 1.38 million. This was a touch above expectations. Building Permits fell 1.6% MOM and 29.9% YOY. This is not surprising given how lousy the home purchase market is. KB Home announced that their cancellation rate was so large, they were halting new projects and just working on the backlog.

On the plus side, mortgage rates are down over 1% compared to October – November 0f 2022. Homebuilders are cutting prices as well, which is good news for affordability.

Meanwhile, Elizabeth Warren is agitating for nationwide rent control using the FTC and HUD as levers to cap rents. No legislation required. I don’t think rent control has ever had the effect she wants (increasing supply and lowering costs), but maybe this time will be the charm. So, who wants to build an apartment complex at a 2% cap rate? Bueller?

The labor market remains tight as a drum. Initial Jobless Claims fell to 190,000 last week, which was the lowest level since the late 1960s when we had a military draft. We are seeing more dovishness out of the Fed speakers, as Harker and Logan want to moderate the pace of increases. Meanwhile Bullard and Lester want to keep rates higher for longer.

Here is a chart of initial jobless claims from 1967 – 1970.

Interesting stat out of China: The population fell in 2022. Since population growth is one of the biggest drivers of climate change, this probably takes the doomsday scenarios off the table if it continues a trend. Instead of 30 billion people by 2100, we might only get 10 billion.


Author: Brent Nyitray

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

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