Current position: Carefully Floating
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Stocks are mixed, and mortgage bonds are slightly lower so far this morning.
Case Shiller Home Price Index
The Case Shiller Home Price Index, which is the "gold standard" for appreciation, showed that home prices fell 0.5% in Januarya non-seasonally adjusted basis. When factoring in the normal softness we see during this time of year and making seasonal adjustments, they were only down 0.2%. While home prices have been softening a bit, they are still up almost 4% year over year.
From the peak in June of 2022, home prices have come down 3%—a far cry from a housing bubble.
FHFA House Price Index
The FHFA (Federal Housing Finance Agency) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. Different than Case Shiller, it does not include cash buyers or jumbo loans. The FHFA reported that prices rose 0.2% in January! Year over year, home prices are up 5.3%. From the peak, home prices, according to the FHFA, are down 0.63%, which is basically flat.
Based on this, you can extrapolate that the decline in Case Shiller is coming from higher-priced homes where there is less demand. Additionally, there are likely to be cash discounts offered, where buyers paying in cash are able to command a lower price, which is why Case Shiller is also lower.
Apartment List Rental Report
Apartment List reported that rents rose 0.5% in March and are now up only 2.6% year over year, down from 3% in the previous report.
Bottom line: Home prices and rental prices have been significantly decelerating and have shown some outright declines. Yet the shelter component of the CPI is still accelerating because of how they calculated the data over the last year. This will catch up, and when it does, it will be deflationary. Right now, real-time shelter costs are only up 2.6% year over year, compared to 8.1% in the CPI report. If you were to catch this up and consider that shelter makes up 43.2% of the core CPI index, inflation would be 2.4% lower. Instead of 5.5%, it would be 3.1%. Inflation, and in turn mortgage rates, will come down. It's just a matter of time. We hope this lag starts to catch up on May 10.
Mortgage bonds continue to vacillate and are now in a tight range between a dual floor of support at the 50 and 100-day moving averages and overhead resistance at the 100.758 Fibonacci level. We do have to remain on guard, as bonds are in overbought territory on the stochastic momentum indicator and there has been a negative crossover. Begin the day carefully floating.