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MBS Highway Daily Updates 01/26/2023

Current position: Carefully Floating


Stocks and Mortgage Bonds are both lower to start the day. Barry Sternlicht, the CEO of Starwood Capital, spoke on CNBC this morning and agreed with a lot of what we have been saying. He was very critical of the Fed and said that they are making a mistake by looking at lagging indicators, such as shelter. He agreed with us and said it has peaked and is heading lower.


And maybe our Fed is missing the boat, but at least one central bank is paying attention-The Bank of Canada is the first major central bank to signal a pause and say let's wait and see.

GDP

The first reading of Q4 GDP showed that the US economy grew by 2.9% annualized, which was 0.3% higher than estimates.


But the internals were weak, and a lot of the strength was inventory building, which will not be a plus in Q1 and Q2 of 2023 and, with the other slowdown signs we are seeing, could lead to a negative print. We have gone over the big build inventories before, showing you the chart and how that will lead to a slashing of price and inflation to get rid of the excess

New Home Sales

New Home Sales, which measure signed contracts on new homes, rose 2.3% in December to a 616 - unit annualized pace, which was in line with estimates. Last month's figure was revised lower, which made the gain today appear bigger, but we did see a slight uptick in activity from November. This is in line with what we are seeing with the traffic reported from builders in NAHB, as well as the increase in mortgage applications as rates have moved lower. New Home Sales are, however, down 2% from last year.


There were 461,000 new homes for sale at the end of December. At the current pace of sales, there is a 9-month supply. However, only 71,000, or 15%, are completed. When looking at the pace of sales vs. the number of homes that are completed, there is only a 1.4-month supply.


The median home price fell 6% last month to $442,100, but this can be skewed due to the mix of sales. Year over year, the median home price is up almost 8%.


Durable Goods Orders

Durable goods, which measure larger capital expenditures that you don't make often, like refrigerators, were up 5.4% in December. But this is skewed heavily by things like aircraft, which had a big spike. Removing transportation, this was down 0.1%... so don't read into the strong number too much.

Initial Jobless Claims

Initial Jobless Claims, which measure individuals filing for unemployment benefits for the first time, fell 6,000 to 190,000 and were 19,000 less than expectations. Continuing Claims, or those that continue to receive benefits after their initial claim, increased 20k to 1.68M. We are continuing to see a tight labor market where companies are doing their best to hold onto workers, but once they are let go, they are having a hard time finding new work. And the last jobs report showed us that even though people are not getting let go, hours are being reduced.



CoreLogic Loan Performance

CoreLogic released its loan performance insights for November, showing that overall delinquencies and foreclosure rates remained near record lows. Loans 30 days or more delinquent increased slightly from 2.8% to 2.9%. Those 90 days or more remained at 1.2%. Lastly, loans in foreclosure were unchanged at a near multi-decade low of 0.3%.


For all the talks of housing being unhealthy, all the delinquency figures are at very healthy low levels. For perspective, total delinquencies were more than six times higher during the housing crash.

Technical Analysis

Mortgage Bonds continue to trade in a well-defined range between support at the 25-day Moving Average and overhead resistance at 101.671. They may continue to trade sideways in this range until tomorrow, when we get the Fed's favorite measure of inflation, Personal Consumption Expenditures (PCE).


The 10-year took another run at 3.43%, which has been a very tough floor of support and has prevented yields from improving lower. Once again, a Bond friendly number tomorrow could help create the breakthrough to the downside we have been waiting for. Continue Carefully Floating.


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