Current position: Carefully Floating
Stocks are higher, and mortgage bonds are trading near unchanged levels so far this morning.
Housing Starts and Permits
Housing starts in April rose by 2% to a 1.4 million unit annualized pace, but March's figures were revised lower by 2%. Factoring in the revisions, starts are still lower than the originally reported figure last month. Starts are down 22% from last year.
Single-family starts, which are most important, rose 1.6% last month at an 846k unit pace, but again, March was revised lower by 2%, and today's figure is lower than the originally reported number for last month. 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 1.5% last month at a 1.416 million unit annualized pace and are down 21% from last year. Single-family homes were up 3.1% last month but are still down 21% year over year.
Completions fell by over 10% last month, and single-family homes were down 6.5%. Bottom line, we are undersupplied, and there is not much help on the way, as it doesn't make sense for builders to construct with the high costs due to the Fed hiking rates so aggressively.
NAHB Housing Market Index
The NAHB Housing Market Index, which measures builder confidence, rose 5 points in May and is finally getting back to breakeven of 50, which is the level between expansion and contraction. Confidence has risen for five straight months and is at the highest level it's been at since July 2022. The estimate was for no change, so this was much stronger than expectations.
Looking at the internals:
Present present situation was up 5 points to 56
Future future outlook was higher by 7 points to 57
Buyer traffic rose 2 points to 33, but is still well below 50
Even when the housing market was very strong in May 2022, buyer traffic was only 53. And traffic has made a big recovery from 20 in November of last year. Home builders are feeling a bit more confident because there are no existing homes for sale, and they are taking market share.
Builders are also gaining share in the existing market because of the incentives they are utilizing. The NAHB said 54% of builders offered some type of incentive to help lift sales, though that is down from 59% in April and the recent peak of 62% in December. They also said 27% are reducing prices, but that is down from 30% in April and 36% last November. With the incentives starting to go away, it speaks to strength in the new construction market.
Mortgage Applications
The MBA released their mortgage application data for last week, showing that purchases fell by 4.8% last week and are down 26% year over year.
Interest rates increased slightly from 6.5% to 6.57%, with rates now about 1.125% higher than this time last year. Refinances decreased by 7.7% last week after jumping 10% in the previous report and are now down 43% year over year. The year-over-year figures are starting to get a little better because of easier comps from last year.
20 - year bond auction
Later this afternoon at 1:00 pm ET, there will be a 20-year bond auction, which can impact the markets depending on the level of demand.
Technical Analysis
Yesterday, mortgage bonds tested support at the important 100.281 floor and opened up this morning just above it. They have since started to move a bit higher, but there are several ceilings overhead that will be difficult to break.
The 10-year tested its 200-day moving average yesterday, which held. Yields are in the middle of a range between the aforementioned ceiling of resistance and support at the 50-day moving average. Begin the day carefully floating.
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