Current position: Carefully Floating
Stocks are lower, and mortgage bonds are slightly lower but still well off their worst levels.
St. Louis Fed President, James Bullard
James Bullard's recent comments are weighing on the markets, and despite all of the indications we are seeing for a weaker market and a recession, he won't back down.
Bullard wants to hike 75bp from here, does not believe there will be a recession, thinks the banking sector is fine, and that the labor market seems "very, very strong."
Taking these one at a time, we believe the Fed has already done enough, but they are expected to hike 25bp next month. Most Fed members believe that will be it, but Bullard is always an outlier. Remember, this is the same person who wanted the Fed Funds Rate above 7% previously.
In a recession, there are many signals we are seeing from leading economic indicators, such as the yield curve, manufacturing, housing activity, etc., all pointing to a recession. We also recently received data on commercial lending standards and commercial loan volumes: lending standards are moving much higher, while lending volumes are falling off a cliff. The last two times we saw this happen were in 2001 and 2008, ahead of recessions.
The job market has undergone many manipulations, and there are signs of things turning around, from lower job openings to higher initial jobless claims and fewer hours worked. Remember, we do not get a recession when the unemployment rate is high, but rather when it reaches its lowest point and begins to rise.
ApartmentList Millennial Homeownership Report
Those born between 1981 and 1996, or millennials, have just crossed the 50% homeownership rate. The story says that it lags previous generations, but millennials are doing things later than previous generations. The average age of marriage used to be in the early 20s in the 1960s, and that has now moved to the early 30s. Often times, one of the biggest reasons to buy a home is when you create a family, and if they are doing that later, it will push back the homeownership rates.
Of those surveyed, 2/3 of those renting say they don't have enough for the downpayment, while 25% say they will rent forever. There are many misconceptions that you need 20% down to purchase a home; make sure you are educating your customers.
The NAR just released a report showing that those who purchased a median priced home 10 years ago gained $ 190,000 in appreciation on average. It went on to say that the net worth of a typical homeowner is about 40 times that of a renter!
Mortgage Applications
The MBA released their mortgage application data for last week, showing that purchases fell 10% last week after rising 8% the previous week. They are now higher five out of the last seven weeks. Purchases are still down 36% from this time last year.
Slowing down application volume was a rise in interest rates, which increased from 6.3% to 6.43%, a three-week high. Rats are about 1.25% higher than this time last year, when rates were 5.25%. Refinances fell 5.8% last week and are now down 56 percent year over year.
20-year Bond Auction
Later this afternoon at 1:00 p.m. ET, there will be a 20-year bond auction, which could impact the markets depending on the level of participation. Strong demand will likely push bond prices higher, while weak demand will add selling pressure. We will update you with the results shortly after 1:00 p.m. ET in the market news section of the website.
Technical Analysis
Mortgage bonds are trading in the middle of a wide range between support at 99.845 and overhead resistance at the 50-day moving average. The 10-year has found a nice ceiling of resistance at the 100-day moving average, which is preventing yields from moving higher. Begin the day carefully floating.
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