MBS Highway Daily Updates 04/18/2023
Current position: Carefully Floating
Stocks are higher, and mortgage bonds are trading near unchanged levels so far this morning.
Housing Starts & Permits
Housing starts in March were down by almost 1% to a 1.42 million annualized pace and are down 17% from last year. Single-family starts, which are most important, rose almost 3% last month at an 861,00 unit pace. SF starts are still down 28% year over year, which means that new supply will remain very tight.
Housing permits, which are the future supply, were down almost 9% last month at a 1.41 million annualized pace and are down 25% from last year. Single-family homes were up 4% last month but are still down 30% year over year.
Bottom line, we are undersupplied, and there is not much help on the way.
NAHB Housing Market Index
The NAHB Housing Market Index, measuring builder confidence, rose 1 point in April after rising 2 points in March, 7 points in February, and 4 points in January—all with little to no inventory. The index is now at a level of 45, which is still below the level of 50 but a big improvement from the level of 31 that it was at a few months ago.
Looking at the internals:
-Present conditions: increased 2 points to 51
-Future outlook increased 3 points to 50
-Prospective Buyers Traffic remained at 31 (after three months of increases)
Present conditions are back in expansionary territory, while the future outlook is right at the breakeven point between expansion and contraction. Traffic is still deeply in contraction, but has been making some progress in the last few reports and will continue to pickup as rates come down.
CoreLogic Rental Report
Single-family rent growth continued to cool in February, now up 5% year over year, down from 5.7% in the previous report. Rent growth continues to moderate; it's only a matter of time before it catches up in the inflation reports and starts to add deflationary pressure.
Bank Balance Sheets
The Fed's rate hikes and the banking crisis have certainly worked to slow down the economy and will continue to do so. The U.S. commercial bank assets, both big and small, saw a $60 billion contraction in the first week of April, down for three consecutive weeks and in six of the past seven. Since the beginning of February, even before the demise of the three banks, assets have shrunk by $ 90 billion. Deposits have also fallen off a cliff, limiting banks' ability to lend.
Additionally, banks tightening their credit standards for loans has risen sharply, while commercial and industrial loans have fallen. The last few times we saw a gap between these two metrics like this was during the 2001 and 2008 recessions. This time will likely not be different and will lead to slower money growth, slower economic growth, less inflation, and lower mortgage rates.
Mortgage bonds are now trading in a new range after closing beneath the 50-day moving average yesterday, which will now act as a ceiling of resistance. The next floor of support is all the way down at 99.845, roughly 50bp beneath present levels, which we have to be on guard for.
The 10-year is now firmly above its 200-day moving average, something we were concerned about yesterday. Bonds did stop at the 100-day, which is providing some resistance and preventing yields from crossing 3.61%. After locking yesterday, begin the day carefully floating.