MBS Highway Daily Updates 11/25/2022
Current position: Carefully Floating
The Stock market will be closing at 1:00 pm ET and the Bond market will be closing at 2:00 pm ET today.
Stocks are higher and Mortgage Bonds are lower, but well off their worst levels, and still remaining above Fibonacci support.
Media on Housing
The media has been negative on housing for the last 10 years and said don't buy a home... but home values are up 115% from 2012 and 39% over the last 2 years.
The media has been pushing the narrative that housing is in a recession and that home prices are down sharply on a year-over-year basis. Year-over-year appreciation has decelerated from 20% to 13%, and the media is stating this is the biggest decline in home prices we have ever seen. This is just a decline in home price appreciation... not a drop in home values. It's important to note that actual appreciation, according to case Shiller, is only down 1.5% from the peak. It will likely continue to come down over the next two months, as peak interest rates have not been fully factored into the numbers.
But we have seen a deceleration in home price appreciation on a year-over-year basis in the past. In 2018, year-over-year appreciation decelerated from 6.5% to 3% in 2019. This is a 55% deceleration, while we still saw home price gains. We also saw a deceleration in 2021, while seeing home prices gains. Looking from the peak in 2021 to today, year over year appreciation went from 20% to 13%, which is a 35% deceleration... but the media won't tell you that.
While we will likely see additional softness, we think that when rates come down next year to 5%, we will see a reacceleration in appreciation.
Fed Minutes from Wednesday
Federal Reserve officials expect to switch to smaller interest rate increases "soon," according to minutes from the November meeting released Wednesday.
Some officials expressed concern over the impact rate increases could have on financial stability and the economy.
"The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important."
Knee-jerk reactions, but then markets like it
50bp is a lock for Dec 14
CoreLogic Loan Performance
CoreLogic released its loan performance insights for September and all of the components were unchanged from August. Loans 30 days or more delinquent stayed at 2.8%, while those 90 days or more remained at 1.2%. Lastly, loans in foreclosure were unchanged at a near multi-decade low of 0.3%.
For all the talks of housing being "savagely unhealthy", all of the delinquency figures are at very healthy and low levels. For perspective, delinquencies were 6 times higher during the housing crash.
Tuesday: Case Shiller Home Price Index, FHFA House Price Index
Wednesday: ADP Employment Report, Pending Home Sales
Thursday: Personal Consumption Expenditures
Friday: BLS Jobs Report
We expect Thursday to be another good day for the Bond market, as we anticipate the PCE report to show lower appreciation, much like we saw in the CPI report on Nov 10.
Mortgage Bonds have back-tested support at the 100.534 Fibonacci level, which is holding. Bonds have moved higher from this level, although they are still lower on the day. Bonds have room to move higher until reaching the 100 - day Moving Average at 101.145.
The 10 - year Treasury Note Yield hit exactly our target of 3.67%, but was unable to break beneath it. Continue Carefully Floating.