MBS Highway - Daily Updates 10/20/2022
Current position: Locking
Stocks and Bonds are both slightly higher to start the day. Mortgage Bonds were lower in the early going, but have clawed back their losses so far. The 10 - year set a new local high at 4.176% this morning, but is now trading at 4.15%.
In housing news, Existing Home Sales, which measure closings on existing homes, showed that sales were down 1.5% in September at a 4.71M annualized pace, which was slightly stronger than expectations, but still a decline. On a year-over-year basis, sales are down 23.8%.
Inventory has crested, as it does every time this year after the normal seasonal build, and declined for the second straight month to 1.25M.
There is now a 3.2 Months supply of homes, which is tight because 6 months is considered balanced. But if you look at active listings, there are only 732,000, which means that 41% of the "inventory" in the Existing Home Sales report is under contract and not truly available. This speaks to demand, as a normal market has 25% of inventory under contract. When looking at the month's supply of available homes for sale, it's really 1.9 months.
The NAR Chief Economist, Lawrence Yun, underscored our beliefs on the housing market and how dynamics are so different than during the housing bubble - "Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory, "Yun added, "The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010 when inventory levels were four times higher than they are today".
And while there are reports that homes are sitting longer on the market, if they are priced correctly, they are still moving fast. Average days on market increased slightly from 16 days to 19 days, and 70% of homes were on the market for less than 30 days.
First Time Home Buyers have accounted for 29% of sales, which was unchanged from the previous report, but amazingly still higher than 28% last year. Cash buyers accounted for 22% of sales, which declined from 24% in the previous report, while investors purchased 15% of homes, which is down from 16%. Make sure to utilize the new Investment Property tool within MBS Highway. Foreclosures and short sales accounted for roughly 2% of all transactions, which is up slightly from 1%.
Redfin yesterday said in September new listings fell 22% - the largest declines since May 2020 and April 2020, respectively. They went on to say that demand is slumping due to surging mortgage rates, but prices are being propped up by inflation and a drop in the number of people putting their homes up for sale.
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, decreased from 12,000 to 214,000 after two weeks of increases. The volatility of up and down within this report continues and we are not getting any clear signals. Continuing Claims, or those that continue to receive benefits after their initial claim, rose 21,000 to 1.385M.
The Philly Manufacturing Index, measuring manufacturing activity in the Philadelphia region, was down almost 9 points after a 9 - point decrease was reported in the NY Manufacturing Index. Manufacturing is clearly in a recession and is another sign of the economy slowing and a broader economic recession.
Yesterday, the Fed's Beige Book had recession written all over it. Citations of the word "recession" have gone from 10 last month to a record high of 13 in October. Additionally, businesses reported that the passthrough of higher costs was becoming more difficult and they were receiving pushback from consumers. This means that companies have reached their max in pricing power and should contribute to lower inflation.
Mortgage Bonds broke beneath support at 98.266 yesterday and are now trading a new, but still wide range, with the aforementioned floor, now acting as a ceiling and support at 96.98, which is low from October 13 and is over 100bp beneath current levels. The 10 - year is trading at 4.16%, which is another local high. With all of the volatility we have been seeing in the market, and with a lot more room to go until reaching support, continue locking.