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MBS Highway Daily Updates 04/20/2023

Current position: Carefully Floating

Stocks are lower and Mortgage Bonds are slightly higher to start the day.

Existing Home Sales

Existing Home Sales, which measures closings on existing homes, showed that sales were down 2.4% in March at a 4.44 million unit annualized pace, which was in line with estimates. This does come after a very strong February that was revised even higher. If you compared today's report to the initially reported February figure, sales are only down 1.3%. On a year over year basis, sales are down 22%.


Inventory levels remained at a very low 980,000. There is a 2.6-month supply of homes, which is tight because 4.6 months is considered normal. But if you look at active listings, there are only 563,000, as roughly 40% of the homes counted in existing inventory are under contract.

The median sales price of $375,700 is up 2.2% from the previous month but is down 0.9% on a year-over-year basis.


Remember, the median home price is not appreciation, but rather the middle-priced home. That means that if more lower priced homes are sold, this number will fall. You could have all home prices increase but the median price fall if more sales concentrated on the lower end. Actual appreciation numbers are higher, not lower, on a year-over-year basis.


Homes remained on the market on average for 29 days, down sharply from 34 days in the previous report. 65% of homes sold in less than 30 days, up from 57%. If the home is priced right, it is selling.


First-time home buyers accounted for 28% of sales, which was up from 27% in the previous report. Cash buyers accounted for 27% of sales, which was down from 28%. Investors made up 17% of transactions, down from 18%. They made up roughly one out of every five transactions... Clearly, investors are seeing the opportunity in housing right now.



Redfin Housing Report

Redfin just reported that "home prices fell 3% in March—the biggest annual drop in over a decade. This is a very misleading headline and article.


It should be noted that this is the median home price, not appreciation, and is showing that the median price is 3% lower than this time last year. This can be influenced by the mix of sales, as the median price is the home that sold in the middle of the price range.


Additionally, hidden in the article is the fact that median home prices rose by 3.6% in the month of March alone, but are down from tough comps on a year-over-year basis.


Most of the median price declines were in the Bay Area markets, where things got extremely overheated. Markets that did not heat up as much are holding up quite well.


Also discussed is the fact that new listings fell 23.3% year over year in March, to the lowest level on record aside from the start of the pandemic, which means inventory will remain very tight and this will be supportive of home prices.


Activity and competition are also picking back up: 44% of homes had multiple offers in March.

Leading Economic Indicators

The Conference Board released its Leading Economic Indicators for the month of March, which were down 1.2%, twice as bad as estimates, and the weakest print since April 2020. This index has moved lower for 12 straight months and is flashing recessionary signs.


This means the economy will slow, inflation will move lower, and interest rates will follow. Lower rates mean more activity and competition in the second half of the year.

Initial Jobless Claims

Initial Jobless Claims, which measure individuals filing for unemployment benefits for the first time, rose 5,000 to 245,000.


Removing some of the noise, the 4-week moving average continues to be around 240,000. That is the highest since November 2021.


Continuing Claims, or those that continue to receive benefits after their initial claim, rose 61,000 to 1.865 million, also the highest reading since November 2021. This metric shows pretty clearly that hiring has slowed, as people are continuing to receive benefits without finding a new job.



Technical Analysis

Mortgage bonds are moving higher, testing, and starting to break above overhead resistance at the 50-day moving average. If bonds can sustain a move above this level, there is a lot of room to the upside. The 10-year is moving lower after testing the 100-day moving average yesterday. Yields have room to move lower until reaching the 200-day moving average at 3.51%. Begin the day carefully floating.


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