|10 year government bond yield
|30 year fixed rate mortgage
Stocks are higher this morning on no real news. Bonds and MBS are down small.
As the shutdown drags on with no end in sight, the IRS has decided to begin issuing tax transcripts. It will probably take a few days to catch up with the backlog, but at least this headache for originators will go away.
Small business sentiment remains strong, according to the NFIB. “Optimism among small business owners continues to push record highs, but they need workers to generate more sales, provide services, and complete projects, said NFIB President and CEO Juanita D. Duggan. “Two of every three of these new jobs are historically created by the small business half of the economy, so it will be Main Street that will continue to drive economic growth.” Bill Dunkelberg notes the cognitive dissonance in the business press these days: “Recently, we’ve seen two themes promoted in the public discourse: first, the economy is going to overheat and cause inflation and second, the economy is slowing and the Federal Reserve should not raise interest rates,” said NFIB Chief Economist Bill Dunkelberg. “However, the NFIB surveys of the small business half of the economy have shown no signs of an inflation threat, and in real terms Main Street remains very strong, setting record levels of hiring along the way.”
Growth in the service sector decelerated in December, according to the ISM Non-Manufacturing Index. New Orders were the bright spot in the report while most other indicators fell. Note that we are still at historically very strong levels, so there is nothing recessionary in this report. Residential construction remains an issue. One of the respondents said: “New residential home sales have slowed significantly. Tariff delay has slowed material cost increases, but all indications are that January will bring price increases.” I found that surprising given that lumber prices have been falling steadily for the past 6 months and are down 22% YOY.
Homebuyer sentiment has been souring as well, according to the latest Fannie Mae National Housing Survey. Blame high house prices: “Consumer attitudes regarding whether it’s a good time to buy a home worsened significantly in the last month, as well as from a year ago, to a survey low,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Although home price growth slowed in 2018, the cumulative impact of sustained, robust increases in home prices outpacing income growth likely helped drive the share of consumers citing high home prices as a primary reason for a bad time to buy a home to a survey high.” The net number of people who think it is a good time to buy fell from 23% to 11%. The net number of people who think home prices will rise fell slightly, but nothing as dramatic as the good time to buy statistic. Note that there was no major moves in the personal economics numbers either – the net number of people not concerned about losing their job hit 79%, a series high.
The Washington Post summarized the 2019 housing forecasts from the MBA, NAR, and more. The MBA is forecasting that the 30 year fixed rate mortgage will hit 5.1%. (Zillow is even more bearish – they are forecasting 5.8%) While those forecasts are certainly a possibility, they seem unlikely if the Fed is indeed done with this tightening cycle. Despite that rate forecast the MBA does see purchase origination increasing, while refis will decline. The NAHB is predicting new home sales will be flat with 2018, around 618,000.