|10 year government bond yield||3.96%|
|30 year fixed rate mortgage||6.66%|
Stocks are flattish this morning on no real news. Bonds and MBS are down.
Consumer confidence declined in February, according to the Conference Board.
“While consumers’ view of current business conditions worsened in February, the Present Situation Index still ticked up slightly based on a more favorable view of the availability of jobs. In fact, the proportion of consumers saying jobs are ‘plentiful’ climbed to 52.0 percent—back to levels seen in the spring of last year. However, the outlook appears considerably more pessimistic when looking ahead. Expectations for where jobs, incomes, and business conditions are headed over the next six months all fell sharply in February.”
“And, while 12-month inflation expectations improved—falling to 6.3 percent from 6.7 percent last month—consumers may be showing early signs of pulling back spending in the face of high prices and rising interest rates. Fewer consumers are planning to purchase homes or autos and they also appear to be scaling back plans to buy major appliances. Vacation intentions also declined in February.”
Home prices fell 0.1% in December, according to the FHFA House Price Index. For the year, home prices rose 8.4%. “House price appreciation continued to wane in the fourth quarter” said Dr. Polkovnichenko, Supervisory Economist in FHFA’s Division of Research and Statistics. “House prices grew at a much slower pace in recent quarters amid higher mortgage rates and a decline in mortgage applications. These negative pressures were partially offset by historically low inventory.”
You can see a pretty wide skew in the regions. The top performing regions during the pandemic (West Coast and Mountain states) are bringing up the rear, while Florida and the Southeast are the leaders.
The Case-Shiller Home Price Index showed a bigger slowdown in December, with the index falling 0.8%
“The cooling in home prices that began in June 2022 continued through year end, as December marked the sixth consecutive month of declines for our National Composite Index,” says Craig J. Lazzara, Managing Director at S&P DJI. “The National Composite declined by -0.8% in December, and now stands 4.4% below its June peak. For 2022 as a whole, the National Composite rose by 5.8%, the 15th best performance in our 35-year history, although obviously well below 2021’s record-setting 18.9% gain. We could record similar observations in the 10- and 20-City Composites.”
“Prices fell in all 20 cities in December, with a median decline of -1.1%. Moreover, for all 20 cities, year-over-year gains in December (median 4.4%) were lower than those of November (median 6.4%). We noted last month that home prices in San Francisco had fallen on a year-over-year basis. San Francisco’s decline worsened in December (-4.2% year-over-year); its west coast neighbors Seattle (-1.8%) and Portland (+1.1%) once again form the bottom of the league table.
“The prospect of stable, or higher, interest rates means that mortgage financing remains a headwind for home prices, while economic weakness, including the possibility of a recession, may also constrain potential buyers. Given these prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”
Homebuilder Hovnanaian Enterprises reported a 8.8% decline in revenues and a drop in gross margins, which indicates that it had to use promotional incentives to move the merchandise. The cancellation rate rose to 30%.
“High inflation, sharp year-over-year increases in mortgage rates and significant economic uncertainty adversely impacted consumer demand for housing during the second half of 2022,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. “We are encouraged that the improving tone of the housing market is a good indication that the housing industry is positioned to experience a strong spring selling season. We believe long term fundamentals such as strong employment levels, pent up housing demand from the substantial underproduction of new homes for more than a decade and historically low levels of existing home supply set the stage for a housing market rebound. However, we continue to closely monitor the impact of mortgage rate movements and the actions taken by the Federal Reserve have on housing demand,” concluded Mr. Hovnanian.
Hovnanian is exiting the Minnesota, North Carolina, Tampa and Chicago markets.