Bond yields rebounded after Trump said he doesn’t need a deal with Iran, which elongates the expected timeline for an end to the war in the Middle East. Note that yields are up globally, so this is more than just a US phenomenon. Oil has not responded as much so this reaction seems concentrated in the bond market.
Hawkish comments out of the Fed have made a rate hike in December a lock, and the futures are pricing in a 11% chance of a 50 basis point hike. MBS spreads are still elevated, but are at the best levels in 5 weeks, which does help. Finally, the yield curve is flattening, which helps mortgage rates at the margin.
The resignation of Jensen Huang at Nvidia adds one more worry to the pile of AI debt concerns. Nvidia financed a lot of smaller AI firms and Huang liked deal making, and it isn’t clear that his successor will follow that strategy.
Inflation at the wholesale level rose 0.3% MOM in October after rising 1.4% in September. The Producer Price Index was up 6.5% on a YOY basis, which is the fastest rate in 4 years. The PPI ex-food and energy rose 0.5%, the same as September and is up 4.9% YOY. These numbers were a touch below expectations, which is helping push down bond yields.
Rising rates have continued to depress home sales. Existing home sales in October fell to a seasonally adjusted annual rate of 3.75 million units. This is down 5.5% MOM and 8.8% YOY. “Home buying is difficult when mortgage rates have climbed to their highest levels since 2000, aside from a single month in 2023. As a result, home sales fell to their lowest level since August 2010,” said NAR Chief Economist Lawrence Yun.
“Despite fewer transactions in October, the 88 million homeowners across the country are largely in a comfortable financial position due to sizable housing wealth accumulation. The number of distressed property sales remains historically low at only 2% of all transactions,” Yun said. “Based on the current underwhelming home sales pace at a time of consistent job growth, there could be sizable pent-up demand if mortgage rates decline.”
The median home price was $416,700, which is up 0.4% YOY. Home price appreciation has definitely stalled out after rebounding a touch during the summer. The NAR affordability index declined about 6% over the past month.
Yun’s comments about sizeable housing wealth accumulation is why the doomsayers are wrong about affordability causing a collapse in home prices. Without distress, you don’t get a crash.
