Stocks are lower this morning as the chip sell-off continues. Bonds and MBS are up.
Housing starts rose 19% MOM and 3.5% YOY to a seasonally adjusted annual average of 1.43 million units. Building permits fell 3% MOM and rose 2.3% YOY to a rate of 1.37 million units.
Homebuilder sentiment remains depressed as affordability concerns persist according to the NAHB Homebuilder Sentiment Index. Sentiment has remained at a low level for 40 consecutive months, the longest streak since 2012. Builders are cutting prices to move the merchandise as is evident in the falling gross margins for the big publicly traded builders. Last month 37% of builders reported price cuts of around 6%.
“Many potential buyers remain on the sidelines as they wait for lower mortgage rates, more certainty on inflation and a clearer economic outlook,” said NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio. “The recently enacted 21st Century ROAD to Housing Act contains important provisions on land-use and zoning, regulatory reform and financing tools that address obstacles facing builders and buyers, but these reforms will take time to implement.”
“With the HMI below 40 for 15 straight months, affordability remains the home building industry’s primary challenge, as elevated mortgage rates, costly land, rising material prices, and persistent skilled labor shortages continue to affect the market,” said NAHB Chief Economist Robert Dietz. “Looking ahead, the newly enacted housing law is a positive step that will help expand housing supply and lower overall housing costs, although more policy change is needed at the state and local level.”
Dallas Fed President Laurie Logan called for “modestly higher” interest rates to bring down inflation. “I currently believe modestly higher interest rates would better balance the outlook and risks for the FOMC’s dual mandate goals,” Logan said in prepared remarks for a speech in Houston. “Every month of above-target inflation has compounded the strain on Americans’ budgets. … One month of relief is not enough. It is time to finish the job of restoring price stability,” she said. “In monetary policy as in hockey, you have to skate where the puck is going. Unfortunately, inflation does not appear to be headed sustainably back all the way to 2 percent.”
Pending home sales fell 5.4% last month. All regions fell on the MOM basis, but the Northeast and Midwest rose annually. Affordability issues continue to weigh on the housing market.
“The highest mortgage rates in nearly a year and the record-high national median home price together are contributing to a tepid housing market that is especially difficult for first-time homebuyers,” said NAR Chief Economist Dr. Lawrence Yun. “However, job gains can help support housing demand.”
“It is worth emphasizing that it is closing activity, not contract signings, that generates economic impact. Pending contracts are only suggestive of upcoming closed deals and do not align perfectly, due to fallout rates and contract contingencies.”
Homebuyer affordability slipped again, as high mortgage rates negatively impact buyers. The National Association of Realtors measures affordability by calculating the income required to afford the median home. In this case, the median home price is $446k and the income required to afford it is $109,500.
Affordability has improved on a YOY basis, but the monthly numbers have been declining as the war in Iran pushes up bond yields and mortgage rates.
