Stocks are flattish this morning after digesting yesterday’s rally Bonds and MBS are flat.
The June FOMC meeting begins today – the first with new Chairman Kevin Warsh leading the charge. The markets don’t see any change in rates, but we will get a fresh set of economic projections and a new dot plot. Note that Kevin Warsh isn’t a big fan of all the disclosures. Old timers may remember when the Fed just put out a statement and that was the end of it. No press release, no dot plot. This stuff was instituted by Janet Yellen during the deflationary period in the aftermath of the real estate bubble.
The December Fed Funds futures see a 42% chance of no changes in the Fed Funds rate this year, a 42% chance of a 25 basis point hike and a 16% chance of 2 or more hikes. It is probably too early to predict how quickly energy prices revert to normal with the Strait of Hormuz re-opening but that will be the driver here.
Homebuilder sentiment remains low as affordability issues and excess inventory weighs on sentiment. The index fell two points to 35, which is a low we haven’t seen since 2011-2012. “Costly and inefficient regulatory policy is clearly impeding the ability of builders to increase the housing supply,” said NAHB Chief Economist Robert Dietz. “According to a new NAHB study, government regulation, taxes, fees and other costs add more than 26% to the price of an average single-family home. Easing permitting bottlenecks, density limits and inefficient zoning rules would help reduce costs and support the housing growth the nation needs.”
Indeed, sentiment is pretty lousy Part of the issue seems to be the hangover from the days of COVID and ultra-low interest rates:
Housing starts fell 15.4% MOM and 8.7% YOY to a seasonally adjusted annual rate of just 1.18 million units. This is the lowest number since the dark days of the COVID lockdowns. It was a big enough decrease that I suspect it will be revised away in later releases. We had been in a range of 1.3 million to 1.5 million since 2022. Building permits were roughly flat MOM and YOY at 1.41 million units.
Regardless, the numbers out of Lennar, builder sentiment and housing starts show that things are not great in the homebuilding sector. Despite the dour numbers, the stock market is sanguine. The S&P SPDR homebuilder ETF is defying gravity.
Industrial production rose 0.1% in May while manufacturing production was flat. Construction and business equipment, probably related to data centers, were the bright spot in the report. Capacity utilization inched up to 76.2%.
